Why Special Drawing Rights Can’t Be Paid Through Regional Banks–IMF

The International Monetary Fund has explained that it is impossible for its Special Drawing Rights (SDRs) to be channeled through regional banks.

The IMF said this to address the debate for it to channel SDRs through regional banks like the African Development Bank (AfDB), European Central Bank and the Asian Development Bank.

The SDRs is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries.

The asset is based on a basket of international currencies which include the United States Dollar, Japanese Yen, Euro, Pound Sterling and Chinese Renminbi.

Specifically, the SDRs are allocated to member countries to reduce their reliance on more expensive domestic or external debt for building reserves.

As of August 23, 2021 SDR 456.5bn or an equivalent of $650bn was allocated to aid recovery from the Covid-19 crisis which is by far the largest allocation since inception.

About $33bn was allocated for African countries out of a $650bn global allocation.

Nigeria was among Africa’s biggest beneficiaries of the SDR during the Covid-19 crises in 2020. Nigeria received $3.4bn from the IMF.

Amidst the rising debate, the IMF MD Kristalina Georgieva in her explanation said the Washington based lender cannot afford to channel SDRs through regional banks.

She said when the funds are channeled to the regional banks, the reserve quality of this asset will become vulnerable.

The IMF MD explained, “There has been a lot of interest in whether we can channel SDRs through regional development banks. And the answer to this is, unfortunately, that we cannot.

“We very much want to partner closely with the regional development banks. But the reason our members cannot channel SDRs directly to the regional development banks is because we have to protect the reserve quality of this asset called ‘Special Drawing Rights.’

“The responsibility to guarantee this reserve asset quality rests on the shoulders of the IMF. It is vitally important for our members who are willing to provide the SDRs that we do this in legal compliance with the Fund’s regulations.”