IMF Working Papers

The Financial Cost of Using Special Drawing Rights: Implications of Higher Interest Rates

Author/Editor:

Neil Shenai ; Nicolas End ; Jakree Koosakul ; Ayah Said

Publication Date:

September 15, 2023

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

Since the August 2021 SDR allocation, the SDR interest rate has risen about 390 basis points through end-June 2023. This paper analyzes the impact of higher SDR interest rates on IMF members with negative net SDR Department positions. To do so, it constructs SDR forward curves at different points in time, from which the expected cost of servicing SDR obligations can be compared. Results show that the expected path of the SDR interest rate has shifted significantly upward since the 2021 allocation. Expected costs of charges (interest) in net present value terms are estimated to have more than tripled, while the grant element of SDRs has fallen to just below the IMF’s concessionality threshold. Despite this increase in cost, IMF members’ capacity to service SDR obligations remains generally adequate in both baseline and stress scenarios, though a few countries will need to carefully manage the rise in interest costs. Decisions to convert SDRs should consider interest rate risks, among other country-specific factors.

Series:

Working Paper No. 2023/193

Subject:

Currencies Discount rates Financial services Freely usable currencies Money SDR interest rate Yield curve

Frequency:

regular