IMF Creates a $650 Billion General Allocation of SDRs, Likely to Increase SDR Global Reserve Percentage
Posted on 09/07/2021
The Board of Governors of the International Monetary Fund (IMF) approved a general allocation of Special Drawing Rights (SDRs) equivalent to US$ 650 billion (about SDR 456 billion) on August 2, 2021, to boost global liquidity.
“This is a historic decision – the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis. The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy. It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis,” IMF Managing Director Kristalina Georgieva said in the press release.
The general allocation of SDRs will become effective on August 23, 2021. The newly created SDRs will be credited to IMF member countries in proportion to their existing quotas in the Fund. About US$ 275 billion (about SDR 193 billion) of the new allocation will go to emerging markets and developing countries, including low-income countries. Based on a YUS$ 650 billion allocation, the United States will receive about US$ 113 billion in SDRs. The dollar currently makes up 57% of global reserves, while SDRs only make up 2%. After the allocation, SDRs as a share of global reserves would only grow to around 7%, while dollars would comprise about 54%, more than three times the next most significant currency. In 2016, the IMF estimated the global reserves gap to be US$ 430 billion to US$ 1.4 trillion. This shortfall of international reserves is likely larger now. IMF members see the current massive allocation of SDRs would help build reserve buffers, smooth adjustments, and mitigate the risks of economic stagnation in global growth, especially due to the impact of the COVID-19 pandemic and its lockdowns.
The SDR was created more than 50 years ago to supplement IMF member countries’ official reserves. The SDR is an interest-bearing international reserve asset created by the IMF. SDRs cannot be held by private entities or individuals.
The SDR exchange rate of reference is 0.702283 SDR per USD as of July 1, 2021 (the date of Chairman’s Summing Up on the Executive Board discussion of Proposal for a General Allocation of Special Drawing Rights).
SDR Allocations
1970-1972 General Allocation – 9,300,000,000 SDRs
1979-1981 General Allocation – 12,100,000,000 SDRs
2009 Special Allocation – 21,500,000,000 SDRs
2009 General Allocation – 161,200,000,000 SDRs
2021 General Allocation – 456,500,000,000 SDRs
Source: IMF Department
A special one-time allocation in 2009 enabled countries that joined the IMF after 1981 (i.e., after previous allocations) to participate in the SDR system on an equitable basis.