Janet Yellen backs new allocation of IMF special drawing rights for low-income countries
Previous SDR allocation of $250bn was approved in 2009 as countries battled the global financial crisis
Washington — US treasury secretary Janet Yellen on Thursday threw her support behind a new allocation of International Monetary Fund (IMF) Special Drawing Rights (SDR), but said broad parameters were needed to boost transparency on how the reserves are used and traded.
Reversing the opposition of the Trump administration, Yellen told G20 finance officials in a letter that a new SDR allocation could boost liquidity for low-income countries, which have been particularly hard hit by the global coronavirus pandemic.
The US treasury chief gave no specific size for possible allocation of SDRs, which can be converted to hard currency by IMF members. G20 finance officials will discuss the issue when they meet by videoconference on Friday.
Italy, which holds the presidency of the G20 in 2021, and other members of the group of developed and emerging economies have backed a $500bn allocation, but the Biden administration had been guarded about its view until now.
Yellen said an SDR allocation and steps to boost low- and zero-interest lending by the IMF and the World Bank would boost efforts to contain the pandemic and mitigate its devastating impact, particularly in low-income countries.
“Without further international action to support low-income countries, we risk a dangerous and permanent divergence in the global economy,” Yellen said.
“An allocation of new SDRs at the IMF could enhance liquidity for low-income countries to facilitate their much-needed health and economic recovery efforts,” she said. “To make this tool effective, the G20 must work with a broad coalition of countries on a set of shared parameters for greater transparency and accountability in how SDRs are exchanged and used.”
IMF spokesperson Gerry Rice welcomed Yellen's comment as “a very helpful letter on a very important issue”. The IMF's issuance of new SDRs during the global financial crisis had “served the world very well and could do so again in the current crisis,” he said.
Yellen also encouraged G20 members to use excess SDRs to support recovery efforts in low income countries, along with continued bilateral aid. She said she looked forward to discussing potential modalities for deploying SDRs.
An IMF spokesperson said members had donated about $15bn in existing SDRs to the Fund's Poverty Reduction and Growth Trust (PRFT), accounting for about two-third of the $24bn in loan resources mobilised for that facility.
More than 200 civil society groups, religious leaders and some Democratic legislators in the US Congress favour a larger allocation valued at $3-trillion, but sources familiar with the matter said they viewed such a large move as unlikely for now.
Eric LeCompte, executive director of Jubilee USA Network, which has co-ordinated letters backing an allocation, said Yellen's letter was “incredibly positive news”.
The IMF's previous SDR allocation of $250bn was approved in 2009, as economies around the world battled the global financial crisis.
Yellen told G20 officials that Treasury would co-chair the relaunched G20 sustainable finance group, and wanted to make it a formal working group to reflect its importance in tackling “the existential threat of our time: climate change”.
She said the group would advance and co-ordinate the G20's initiatives to promote transparency around climate-related financial risks, sustainable finance, and a strong, green recovery, but said they should also support poor countries.
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