"COVID Crisis, Let's Double the IMF Special Drawing Rights"

Virtual Currency Withdrawn to Member Countries

Academia Calls for Expansion of Issuance Scale to $500 Billion

Allocation Ratio Should Also Shift to Emerging Markets

Managing Director Georgieva "Reviewing Allocation"

Full Discussion Expected at Spring Meeting on the 16th

[Image source=Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] As the economic crisis triggered by the novel coronavirus disease (COVID-19) spreads, the International Monetary Fund (IMF)'s Special Drawing Rights (SDR) are gaining attention again for the first time in 10 years since the financial crisis. SDR is a type of virtual currency that IMF member countries with poor foreign currency conditions can withdraw. There is a growing call, especially among emerging countries in Southeast Asia and Latin America, whose economic situations are more vulnerable compared to advanced countries, and within the international economics community, to expand the scale of SDR and change the withdrawal proportions.

Recently, academia has been focusing on SDR. The Brookings Institution, a U.S. think tank, submitted an opinion at the end of last month through a report that the IMF should increase the issuance scale of SDR to $500 billion, twice the amount during the financial crisis, and also change the allocation ratio. Kevin Gallagher, a professor at Boston University who authored the report, emphasized, "SDR support is essential for effective assistance that minimizes shocks to emerging economies, and considering the impact of the COVID-19 situation, the issuance scale should be at least twice that of the financial crisis period, at least $500 billion." He added, "We must also hasten improvements in the SDR allocation ratio to prevent allocations centered on advanced countries as was the case during the financial crisis."

The central bank of a country receiving SDR support can exchange it with other countries' central banks for the foreign currency it needs. During the 2009 global financial crisis, the IMF issued SDR worth $250 billion to support member countries effectively. In particular, although SDR is symbolically a loan from the IMF, it has no maturity date and is not included in national debt, which is an advantage as it does not burden emerging economies.

The expansion of SDR issuance is linked to recent concerns about economic crises in emerging countries. According to major foreign media, 14 countries in Latin America and the Caribbean have requested $4.48 billion in bailout funds from the IMF. Other emerging countries in different regions are in similar situations.

Even if issuance occurs, there is a problem that the emerging countries that actually need support are less likely to benefit. The resolution process involving all IMF member countries takes a long time, and SDR allocation is determined based on IMF shareholding ratios. Since advanced countries like the United States have relatively higher shares than underdeveloped countries, the benefits of SDR also primarily go to advanced countries. Looking at the SDR issued during the 2009 financial crisis, OECD member countries received 59.6% of the total allocation, while the 31 underdeveloped countries received only 8.8% of the total.

Former UK Prime Minister Gordon Brown also wrote in a media contribution last month, "The IMF should change the SDR allocation method centered on advanced countries to address the massive capital outflow problem in emerging markets," and predicted, "If global cooperation is possible, fiscal stimulus funds exceeding 2% of the global gross domestic product (GDP) used by countries during the 2009 global financial crisis could be secured."

However, some express negative views on adjusting the SDR allocation ratio. Mark Sobel, chairman of the Official Monetary and Financial Institutions Forum (OMFIF), stated, "Both the issuance of SDR and changes to the allocation ratio require resolutions by all member countries, and reaching consensus will take a considerable amount of time, so it is not suitable for supporting emerging countries that urgently need funds." He added, "The economic shock caused by COVID-19 is likely to be short-term rather than medium- to long-term for emerging economies, so urgent financial support should take priority."

The IMF is also taking a cautious stance on whether to expand SDR, considering these circumstances. Kristalina Georgieva, IMF Managing Director, said at a joint press briefing with the World Health Organization (WHO) on the 3rd (local time), "More than 85 emerging countries in Southeast Asia and Latin America have requested financial support due to the COVID-19 situation, and the IMF is prepared with a lending capacity of $1 trillion to provide emergency financial support," adding, "We are also reviewing the possibility of using SDR allocations as was done during the 2009 financial crisis." Managing Director Georgieva further stated, "Many member countries have requested that if this method can be used, it should be used quickly." This issue is expected to be fully discussed at the IMF Spring Meeting on the 16th.

This content was produced with the assistance of AI translation services.