The International Monetary Fund’s (IMF) executive board has agreed to a $650 billion expansion in resources to help economically weak countries to combat the coronavirus pandemic.
According to the statement, “The IMF will expand its Special Drawing Rights, a currency reserve that can be tapped by IMF member countries, to fund the spending.”
Ms. Kristalina Georgieva, Managing Director at IMF, has stated that the new support, which is the largest in the Fund’s 77-year history, would be a “shot in the arm for the world.”
“The SDR allocation will boost the liquidity and reserves of all our member countries, build confidence and foster the resilience and stability of the global economy,” Ms. Georgieva added.
To put the size of the funding expansion in context, the IMF approved a $250 billion increase in SDR reserves following the 2008 financial crisis. The SDR is the IMF’s unit of exchange and is made up of a basket of currencies, such as dollars, euros, yen, sterling, and yuan.
To spend their SDRs, countries would first have to exchange them for underlying hard currencies, requiring them to find a willing exchange partner country, as per the reports.
Ms. Georgieva has highlighted that the additional SDR allocation, which was first backed by the G20 major economies in April, would benefit every IMF member country and would especially assist fragile countries in strengthening their response to the COVID-19 issues.
She further added that the fund would actively engage with member nations in the months ahead to “identify viable options for voluntary channeling of SDRs from wealthier members to support our poorer and more vulnerable countries.”
Republican members of Congress have objected to the funding, arguing that the expanded IMF resources would help US adversaries such as China, Russia, and Iran. However, International relief organizations have lent their support to the effort.
Over the next two days, G20 finance officials are expected to explore potential SDR contribution methods for low-income nations, vulnerable middle-income countries, and small island states.