What if there was a giant, untapped treasure trove that the World Bank could mine for tens of billions of dollars in new, low-cost lending within the next 12 months? It would allow the bank to lend more for climate, health, education, or whatever else is needed in low-income countries struggling with access to money.
It turns out that such a goldmine already exists, according to Brad Setser, a senior fellow at the Council on Foreign Relations and a former United States Treasury official, and Stephen Paduano, a Ph.D. candidate at the London School of Economics. The two experts mapped out a plan, and all it will take is a little financial engineering and the willingness of high-income countries and the bank to get creative.
The pair argue that the key to awakening these dormant funds is for the World Bank to issue a set of bonds denominated in Special Drawing Rights, or SDRs — a “reserve asset” created by the International Monetary Fund. The SDRs are something like the Santa Claus of backup fiscal power, in that they are real as long as everyone involved believes in them — and they’re a boxed present that countries can exchange for cash, especially in challenging times.