Originally published by the Center for Economic Policy and Research and authored by Alexander Main, Mark Weisbrot, and Didier Jacobs.
IMF Managing Director Kristalina Georgieva has asked G20 governments for their backing to “boost global liquidity through a sizable SDR allocation, as we successfully did during the 2009 global crisis.”1 African and European heads of state have called on the IMF to “decide immediately on the allocation of special drawing rights.”2 Former UK Prime Minister Gordon Brown and former US Treasury Secretary Larry Summers recently wrote that “if ever there was a moment for an expansion of the international money known as Special Drawing Rights, it is now.”3
Special Drawing Rights, or SDRs, are not well known to the general public, but economists and development experts believe they could provide crucial support to countries facing economic and public health crises caused by COVID-19. In this policy brief we explain how SDRs work and how they should play a vital role in containing the global COVID-19 pandemic and stabilizing the world economy. We also look at the benefits of SDRs for the United States and address counter-arguments.
What Are SDRs?
Special Drawing Rights, or SDRs, are international reserve assets — a sort of international currency4 — which the International Monetary Fund (IMF) creates for its 189 member countries, much as central banks increase the supply of bank reserves at the national level. In times of economic and financial distress, countries can use these SDRs to meet external financing needs, thereby helping avert financial and/or balance of payments crises and helping maintain the confidence of financial markets. Countries can exchange SDRs for one of five foreign currencies (the US dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound) which can be used to pay for imports or to cover debt service payments.
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- Georgieva (2020).
- Ahmed et. al. (2020).
- Brown and Summers (2020).
- A currency fulfills three roles: it is a unit of account, a means of exchange, and a means to store value (i.e., an asset). SDRs fulfill these three roles, but they are used only by governments and some international institutions.