Why Special Drawing Rights Cannot Be Paid Through Regional Banks–IMF

The International Monetary Fund explained that it was impossible for its special drawing rights (SDRs) to pass through regional banks.

The IMF said this to respond to the debate over the channeling of SDRs through regional banks such as the African Development Bank (ADB), the European Central Bank and the Asian Development Bank.

The SDR is an interest-bearing international reserve asset created by the IMF in 1969 to supplement the other reserve assets of member countries.

The asset is based on a basket of international currencies that includes the US dollar, Japanese yen, euro, British pound and Chinese renminbi.

Specifically, SDRs are allocated to member countries to reduce their reliance on more expensive domestic or external debt to build up reserves.

As of August 23, 2021, 456.5 billion SDRs or the equivalent of $650 billion have been allocated to aid recovery from the Covid-19 crisis, which is by far the largest allocation since its inception.

About $33 billion has been allocated to African countries out of a global allocation of $650 billion.

Nigeria was one of the largest African recipients of SDRs during the Covid-19 crisis in 2020. Nigeria received $3.4 billion from the IMF.

Amid growing debate, IMF Managing Director Kristalina Georgieva said in her explanation that the Washington-based lender could not afford to channel SDRs through regional banks.

She said that when funds flow to regional banks, the reserve quality of this asset will become vulnerable.

The Managing Director of the IMF explained: “There has been a lot of interest in whether we can channel SDRs through the regional development banks. And the answer to that is, unfortunately, we can’t.

“We are keen to establish a close partnership with regional development banks. But the reason why our members cannot channel SDRs directly to regional development banks is that we need to protect the reserve quality of this asset called “special drawing rights”.

“The responsibility for ensuring the quality of these reserve assets rests on the shoulders of the IMF. It is of vital importance to our members who are willing to supply SDRs that we do so in accordance with the Fund’s regulations.

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