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IMF Policy Panel endorses USD 650 Billion Increase in SDR Allocation

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IMF-policy-panel-endorses-$650-billion-increase-in-resourcesThe International Monetary Fund’s (IMF) Policy Panel has authorized a USD 650 billion expansion of its International Reserve Asset (known as Special Drawing Rights (SDR)). It is the largest ever increase of reserves in IMF’s history.

  • The size of reserves has been increased with an aim of providing financial assistance to vulnerable countries which are struggling with recessions caused by the Pandemic.
  • It will also help them to obtain & administer millions of doses of COVID-19 vaccines.
  • The first distribution of the fresh USD 650 Billion SDR is expected to start in August 2021.

Key Points

  • The idea of expanding IMF reserves was proposed by the USA.
  • The IMF Policy panel also discussed efforts to reduce the impact of climate change on the global economy.
  • IMF released an economic forecast which predicted the global economy to grow at 6% in 2021, which is an upgrade from 5.5% growth forecasted in January 2021.
  • By comparison, during the 2008 Financial Crisis IMF agreed to an increase of USD 250 Billion in IMF’s SDR.

G20 Supports Fresh SDR issue

  • The Finance Ministers of G20 supported the IMF’s decision to issue fresh SDR worth USD 650 Billion to member countries.
  • India was the only country to oppose the move. It has stated that money might be used for ‘extraneous purposes’ (not related to the intended purpose of maintaining domestic monetary and financial stability).

What are Special Drawing Rights (SDR)?

i.It is an international reserve asset created by the IMF. It comprises the US dollar, the euro, Japanese yen, British Pound sterling and Chinese renminbi (or Yuan).

  • It was created to supplement the foreign exchange reserves of its member nations.
  • When a country joins the IMF it is assigned an initial quota (denominated in SDRs).
  • A member country’s quota determines its maximum financial commitment to the IMF and also determines its voting power.

ii.Till date, SDR 204.2 Billion (equivalent to about USD 293 Billion) have been allocated to members.

  • The US has the highest quota of 17.44% SDRs & 16.52 voting rights, while India has the 8th Highest quota of 2.76% SDRs & a voting right of 2.63%.
  • Countries that have contributed more Funds have more control in making and revision rules, while countries that have contributed less enjoy comparatively lesser influence in policy decisions.

Recent Related News:

i.On October 16, 2020, Andorra formally joined the International Monetary Fund (IMF) as its 190th Member.

ii.January 27, 2021, IMF in its latest World Economic Outlook has projected India’s Gross Domestic Product (GDP) to contract by 8%(-8%) in FY20-21.

About International Monetary Fund (IMF):

Members – 190
Managing Director – Kristalina Georgieva
Headquarters – Washington D.C., USA