{ "title": "Point of view: Special Drawing Rights Reconsidered", "sourceUrl": "https://www.imf.org/en/publications/fandd/issues/2024/06/point-of-view-special-drawing-rights-reconsidered-edwin-m-truman", "canonical": "https://www.imf.org/en/publications/fandd/issues/2024/06/point-of-view-special-drawing-rights-reconsidered-edwin-m-truman", "overlayPath": "/en/publications/fandd/issues/2024/06/point-of-view-special-drawing-rights-reconsidered-edwin-m-truman/index.md", "summary": "Countries could better address the world’s economic challenges with help from the IMF’s global reserve asset", "sections": [ { "heading": "Overview", "content": "- Author: EDWIN M. TRUMAN, research fellow at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School and former US Treasury and Federal Reserve Board official.\n- Central thesis: The IMF’s global reserve asset, special drawing rights (SDRs), can better help countries address global economic challenges if the institution continues to evolve, with parallel advances in IMF governance.\n- Context: Reflection on the IMF’s role at its 80th anniversary and the need for innovation to sustain its central role in international monetary cooperation." }, { "heading": "Governance challenge", "content": "- Historical convention: Managing director traditionally a European male, first deputy managing director a US male, and president of the World Bank a US male; this convention has relaxed but transformation is incomplete.\n- Concentration of blocking power: Persistent ability of certain countries (the United States) or groups of countries (the Europeans) to block crucial IMF decisions; China’s desire to join in complicates consensus.\n- Personal account and view:\n - Author argued within the US government against using US veto power as principal talking point when seeking Congressional approval for IMF quota increases or New Arrangements to Borrow.\n - Rationale: The global economy has expanded more rapidly than the US economy, weakening the technical and policy justification for US dominance.\n - Consensus-building: Charles Dallara’s view cited—building a consensus among like-minded directors is key to effectiveness.\n- Proposed solution: A grand bargain involving the United States, Europe, China, and Japan; requires ambition and imagination from IMF leadership and key members." }, { "heading": "SDR opportunity — history and features", "content": "- Origins:\n - First amendment authorizing SDRs approved more than 50 years ago after lengthy negotiation in the 1960s.\n - Initial allocation annually over a three-year period starting in 1969; proved too little too late to save the Bretton Woods exchange rate regime but was pathbreaking.\n - Second amendment in 1978 preserved authority and established a two-part obligation to collaborate on “better international surveillance of international liquidity” and “making the special drawing right the principal reserve asset of the international monetary system.”\n- Mechanism and characteristics:\n - SDRs allocated in proportion to IMF members’ quotas.\n - Each member receives an interest-bearing reserve asset and corresponding long-term liability on which it pays the same rate.\n - SDR value based on a basket of currencies with weights adjusted periodically by the IMF board.\n - SDR interest rate is a weighted average of the short-term government interest rates for the constituent currencies.\n - An SDR allocation adds to a member’s unconditional liquidity and is costless until transferred to another holder.\n- Past allocations:\n - Second allocation authorized for the three-year period 1979–81.\n - SDRs remained unused for 30 years until 2009: IMF allocated $250 billion in SDRs during the global financial crisis.\n - Most recent allocation in 2021: IMF issued $650 billion in SDRs to help members manage the economic and financial consequences of the COVID pandemic.\n- Current share:\n - SDRs’ share in members’ holdings of SDR reserves and currencies is now roughly 7 percent." }, { "heading": "Policy recommendations for SDRs", "content": "- Resume annual allocations:\n - Recommendation: The IMF should resume annual allocations to maintain and gradually increase the share of SDRs in members’ holdings.\n - Suggested scale: Based on recent trends, an annual allocation of $100 billion to $200 billion in SDRs should achieve this objective.\n - Rationale: Ensures steady growth in global liquidity without dramatic effects on the international monetary system; SDRs are efficient, low-cost, and nondistortionary and remain permanently in the global stock of international reserves.\n- Adjust the SDR interest rate formula:\n - Recommendation: Raise the interest rate on SDRs by incorporating a blend of long-term as well as short-term interest rates on government securities denominated in the currencies in the SDR basket.\n - Effects: Slightly reduce the subsidy on what are effectively perpetual loans to countries that mobilize their SDRs; offer some compensation to countries that facilitate mobilization by reducing their currency reserves and increasing their SDR holdings.\n- Encourage use of excess SDR holdings for global challenges:\n - Recommendation: IMF should actively encourage members with excess SDR holdings to use them to help meet global challenges such as climate change and pandemics.\n - Examples of channels: Lending to the IMF’s Poverty Reduction and Growth or Resilience and Sustainability Trusts; lending to multilateral development banks or other prescribed holders of SDRs; purchasing SDR-denominated securities issued by those entities.\n - Policy stance: Member countries should not restrict use by requiring SDR-denominated claims to remain liquid; excess reserves need not be liquid if they exceed requirements; SDRs used in these ways remain in the system, adding permanently to global liquidity." }, { "heading": "Expected benefits and limits", "content": "- Benefits:\n - Regular annual allocations support national and global objectives such as climate change mitigation and adaptation.\n - By lowering the risk and cost of financial crises, SDRs lower the cost of market borrowing, relax external constraints on economic growth policies, and give policymakers greater confidence.\n- Limits:\n - SDRs are not a magic bullet; they are one of many instruments that can contribute to addressing global economic and financial challenges.\n - Parallel governance reform at the IMF is essential for the institution to maintain its central role." }, { "heading": "Forward-looking note", "content": "- Institutional evolution: Continued reform and institutional evolution are essential for the IMF’s continued success.\n- Centennial wish: When the IMF celebrates its 100th anniversary 20 years from now, the author hopes commentators will commend mid-2020s leaders for their vision and imagination in sustaining the institution.\n\nSource: Point of view: Special Drawing Rights Reconsidered, F&D Magazine.\n\n---\n\n Content in this bundle\n\n- Point of View: Special Drawing Rights Reconsidered\n - Point of View: Special Drawing Rights Reconsidered (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Point of View: Special Drawing Rights Reconsidered (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/fandd/issues/2024/06/point-of-view-special-drawing-rights-reconsidered-edwin-m-truman" } ], "bullets": [ "[Markdown version](/en/publications/fandd/issues/2024/06/point-of-view-special-drawing-rights-reconsidered-edwin-m-truman/index.md)", "[Structured JSON version](/en/publications/fandd/issues/2024/06/point-of-view-special-drawing-rights-reconsidered-edwin-m-truman/index.json)", "[Bundle manifest](/en/publications/fandd/issues/2024/06/point-of-view-special-drawing-rights-reconsidered-edwin-m-truman/bundle-manifest.json)", "Authors: Edwin Truman", "Published: June 3, 2024", "Author: EDWIN M. TRUMAN, research fellow at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School and former US Treasury and Federal Reserve Board official.", "Central thesis: The IMF’s global reserve asset, special drawing rights (SDRs), can better help countries address global economic challenges if the institution continues to evolve, with parallel advances in IMF governance.", "Context: Reflection on the IMF’s role at its 80th anniversary and the need for innovation to sustain its central role in international monetary cooperation.", "Historical convention: Managing director traditionally a European male, first deputy managing director a US male, and president of the World Bank a US male; this convention has relaxed but transformation is incomplete.", "Concentration of blocking power: Persistent ability of certain countries (the United States) or groups of countries (the Europeans) to block crucial IMF decisions; China’s desire to join in complicates consensus.", "Personal account and view:", "Proposed solution: A grand bargain involving the United States, Europe, China, and Japan; requires ambition and imagination from IMF leadership and key members.", "Origins:", "Mechanism and characteristics:", "Past allocations:", "Current share:", "Resume annual allocations:", "Adjust the SDR interest rate formula:", "Encourage use of excess SDR holdings for global challenges:", "Benefits:", "Limits:", "Institutional evolution: Continued reform and institutional evolution are essential for the IMF’s continued success.", "Centennial wish: When the IMF celebrates its 100th anniversary 20 years from now, the author hopes commentators will commend mid-2020s leaders for their vision and imagination in sustaining the institution.", "**Point of View: Special Drawing Rights Reconsidered**" ], "related": [ { "title": "Point of View: Special Drawing Rights Reconsidered", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2024/06/truman.pdf", "summary": { "path": "/-/media/files/publications/fandd/article/2024/06/truman.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/fandd/article/2024/06/truman.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/publications/fandd/issues/2024/06/point-of-view-special-drawing-rights-reconsidered-edwin-m-truman/index.md", "json": "/en/publications/fandd/issues/2024/06/point-of-view-special-drawing-rights-reconsidered-edwin-m-truman/index.json", "bundleManifest": "/en/publications/fandd/issues/2024/06/point-of-view-special-drawing-rights-reconsidered-edwin-m-truman/bundle-manifest.json" }, "generatedAtUtc": "2026-09-15T19:20:27.386Z" }