IMF allocates $250 billion in SDRs to members

The International Monetary Fund (IMF) has injected Special Drawing Rights (SDRs) equivalent to $250 billion into the recession hit global economy on Friday, in order to bolster the reserves of its member nations to tide over the financial crisis.

Earlier this month, IMF governors approved the SDR allocation to provide liquidity in the global economic system, following a call given by the G20 industrial and emerging countries during their London summit in April. (See: IMF governors approve $250 billion SDR allocations)

As announced earlier, the $250 billion allocation was made on 28 August, which will be followed by the smaller, special one-time SDR allocation of $33 billion on 9 September, totaling $283 billion. Accordingly, the total outstanding SDRs including the fund's earlier distribution will reach approximately $316 billion.

While allocation of SDR increases the international reserves held by each IMF member, it will not increase the Fund's resources available for lending. It will, however, provide members with an additional method to obtain hard currencies.

The Fund stated that about $110 billion of the combined allocations will go to emerging market and developing countries, including over $20 billion to low-income countries.

IMF's external relations director Caroline Atkinson said: ''The general SDR allocation is a key part of our response to the global crisis, demonstrating the value of a cooperative multilateral approach. The Fund's low-income members will benefit significantly.''

The Fund expects that 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.

The SDR introduced by the IMF in 1969 is an interest-bearing international reserve asset which can be exchanged for freely usable currencies. Its value is based on a basket of four key international currencies, currently: US dollar, euro, Japanese yen and pound sterling. The currency basket and weight of each currency are reviewed every five years. (1 SDR=$1.56392 as on 28 August 2009).

In order to accommodate the expected increase in the volume of SDR transactions, the IMF has called for expanding the capacity of voluntary trading arrangements under which, individual Fund members stand ready to buy and sell SDRs within certain limits, thereby effectively establishing an SDR market. The IMF acts as a broker and arranges transactions between prospective buyers and sellers of SDRs at no cost.

SDR allocations to members are made in proportion to their existing quotas in the Fund, based on their relative size in the global economy.

The US will get the maximum benefit with $47.6 billion, followed by Japan, $17.9 billion and Germany around $17 billion.

India's share of general and special SDRs comes to around $5.1 billion. China gets $10.6 billion whereas shares of other neighbouring countries are: Pakistan-$819 million, Bangladesh-$463 million, Sri Lanka-$325 million, Nepal-$60 million and Bhutan-$6 million. 

SDR allocations of top 20 nations comprise more than 70 per cent of the total allocation of $283 billion.

Top 20 SDR allocations