Just what to do with Special Drawing Rights has been one of the more vexing issues in the effort to boost support to vulnerable countries during the COVID-19 pandemic. Even after the International Monetary Fund’s historic issuance of $650 billion worth of SDRs in August, many questions remain around how to effectively utilize the resource.
The issuance heavily favored wealthy countries, because the allocation was based on shareholding power at IMF. “Low-income developing countries” — a grouping of about 60 nations with per capita income below $2,700 — were awarded only $21 billion out of the pot.
Since then, the world has been grappling with how to reallocate the resources from the rich to the vulnerable. The task is proving complex in part because SDRs are not cash; they are a form of reserve asset, meaning they are used to stabilize currencies and for external financing of payments. This makes simply funneling SDRs through existing institutions, such as multilateral development banks, a challenge.