IMF approves $650b for liquidity boost

WASHINGTON－The board of governors of the International Monetary Fund has approved a new general allocation of Special Drawing Rights, or SDR, equivalent to $650 billion, in an effort to boost global liquidity amid the COVID-19 pandemic, according to an IMF statement released on Monday. It is the largest allocation in the IMF's history.

"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," said Kristalina Georgieva, the IMF's managing director.

The SDR allocation will benefit all IMF members, address the long-term global need for reserves, build confidence, and foster resilience and stability of the global economy. Georgieva said it will particularly help the most vulnerable countries struggling to cope with the impact of the COVID-19 crisis.

The approval came just weeks after the IMF executive board approved the proposal. Final approval of the SDR allocation by the board of governors requires an 85-percent majority of the total voting power of all IMF members.

The SDR can be exchanged among governments for freely usable currencies in times of need. The Chinese currency, renminbi, joined the US dollar, euro, Japanese yen and the British pound to formally become the fifth currency in the SDR basket on Oct 1, 2016. Monday's approval by all 190 IMF member states was long expected.

The program, which had already been approved by the IMF's executive board in mid-July, will be implemented on Aug 23.

Viable options

Georgieva said the IMF will also continue to actively engage with its membership to identify "viable "options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth.

"It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis," she said, adding that about $275 billion of the allocation will go to emerging market and low-income countries.

The agency has been looking into ways richer countries could voluntarily channel SDRs to poorer countries.

One key option is for members that have strong external positions to voluntarily channel part of their SDRs to scale up lending for low-income countries through the IMF's Poverty Reduction and Growth Trust. Concessional support through the facility is currently interest free.

The IMF's last SDR distribution came in 2009 when member countries received $250 billion in SDR reserves to help ease the effects of the global financial crisis.

To spend their SDRs, countries would first have to exchange them for underlying hard currencies, requiring them to find a willing exchange partner country.

Xinhua - Agencies