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IMF injects US$283 billion into global economy

  1. Posted on Friday 28 August 2009 - 18:39
    thejournalist
    By thejournalist (Addis Ababa)

    The IMF today decided to bolster its members’ reserves through an allocation of US$283 billion Special Drawing Rights (SDRs), disclosed IMF Survey Magazine: Policy published today.

    US$250 billion of the allocation is made today and will be followed by an additional allocation of US $33 billion on September 9.

    “The general SDR allocation is a key part of our response to the global crisis, demonstrating the value of a cooperative multilateral approach,” IMF External Relations Director Caroline Atkinson said. “The Fund’s low-income members will benefit significantly,” she added.

    About US$110 billion of the combined allocations will go to emerging market and developing countries, including over US$20 billion to low-income countries. Many of these countries currently face difficult spending decisions when they choose how to address the fallout from the global crisis. For them, the SDR allocation means potential access to unconditional financial resources that could limit the need for adjustment through contractionary policies and allow greater scope for countercyclical policies in the face of recession and rising unemployment.

    Despite a smaller number of SDRs going to the IMF’s low-income members, the allocation will result—in most cases—in a proportionately bigger increase in reserves for them than it will for the advanced economies, which already have a substantial cushion of reserves.

    There are no notes or coins denominated in SDRs, nonetheless the SDR serves as an interest-bearing international reserve asset. The allocation of SDRs by the IMF boosts member countries’ reserves because SDRs can be turned into usable currencies. Once the SDRs have been added to a member country’s official reserves, the country can voluntarily exchange its SDRs for major hard currencies with arrangements with other member countries.

    It was at the April G-20 summit in London that the Group of Twenty called for an SDR allocation of US$250 billion. The proposed general allocation was approved by IMF’s Board of Governors on August 7, 2009, and came into effect on August 28.

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