After the Allocation: What Role for the Special Drawing Rights System?

34 Pages Posted: 23 Mar 2022

See all articles by Tobias Pforr

Tobias Pforr

European University Institute

Fabian Pape

University of Warwick

Steffen Murau

Boston University - Global Development Policy Center; Institute for Advanced Sustainability Studies (IASS)

Date Written: March 9, 2022

Abstract

In August 2021, the IMF made a new SDR allocation to help ease pandemic-induced financial strains in the Global South. This paper assesses the potential of the SDR system to address debt-related problems in global finance. We analyze the SDR system as a web of interlocking balance sheets whose members can use SDR holdings—the system’s tradable assets—for conversion into usable currency as a perpetual low-interest loan or to make payments to each other. Using original IMF data, we study how the system has been practically used since 1990. Though widely perceived as a solution in search of a problem in the post-Bretton Woods era, we find that the SDR system provides three mechanisms through which IMF members borrow and lend usable currency to each other, with different strings attached: first, transactions by agreement; second, the IMF’s core lending facilities for which the SDR system offers additional resources; and third, IMF-sponsored Trusts which seek to harness the SDR system for development purposes and are the basis for the current idea of ‘voluntary channeling’. Overall, given the SDR system’s idiosyncratic accounting rules, the new allocation can improve the liquidity position of a country and offer some limited avenues for sovereign debt restructuring but comes with new interest and exchange rate risks. Voluntary channeling cannot happen without a wealth transfer, neither the SDR allocation nor the use of Trusts can overcome this problem. Still, Trusts can be a useful instrument to help with debt forgiveness and to ensure that borrowed funds are used for their intended purpose.

Keywords: International Monetary Fund, balance sheets, critical macro-finance, Money View, central banks, development finance, Global South

JEL Classification: E42, E58, F02, F33, F34, F53, F55, N10, N20

Suggested Citation

Pforr, Tobias and Pape, Fabian and Murau, Steffen, After the Allocation: What Role for the Special Drawing Rights System? (March 9, 2022). Institute for New Economic Thinking Working Paper Series No. 180, Available at SSRN: https://ssrn.com/abstract=4063198

Tobias Pforr

European University Institute ( email )

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

Fabian Pape

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Steffen Murau (Contact Author)

Boston University - Global Development Policy Center ( email )

53 Bay State Road
Boston, MA 02215
United States

Institute for Advanced Sustainability Studies (IASS) ( email )

Berlinerstrasse 130
Potsdam
Germany

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