IMF: Approved a historic $650 billion SDR allocation to boost global liquidity

Having warned of the global growth risk, mainly due to the coronavirus, the International Monetary Fund (IMF) took a ‘historic’ decision, per the official release, to allocate $650 billion Special Drawing Rights (SDRs) to boost global liquidity.

The press release quotes Managing Director Kristalina Georgieva as saying, “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,” added IMF’s Georgieva per the announcement.

Key quotes (from the official 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.

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 (PRGT).

Concessional support through the PRGT is currently interest-free. The IMF is also exploring other options to help poorer and more vulnerable countries in their recovery efforts.

Market reaction

In a reaction to the news, S&P 500 Futures print a 0.10% intraday gains by the press time.

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