The executive board of the International Monetary Fund (IMF) has backed an allocation of Special Drawing Rights (SDRs) equivalent to 250 billion U.S. dollars to provide liquidity to the global economic system by supplementing 186 member countries' foreign exchange reserves.
The proposed SDRs will be allocated according to the IMF members' existing quotas in the fund. The equivalent of nearly 100 U.S. billion of the new allocation will go to emerging markets and developing countries.
The proposal will now be submitted to the IMF's board of governors for final approval.
"The SDR allocation is a key part of the Fund's response to the global crisis, offering significant support to its members in these difficult times," IMF Managing Director Dominique Strauss-Kahn said.
The SDR allocation was requested as part of a 1.1 trillion U.S. dollars plan agreed at the G20 summit in London in April and endorsed by the International Monetary and Financial Committee (IMFC) to tackle the global financial and economic crisis by restoring credit, growth and jobs in the world economy.
If approved by the board of governors with an 85 percent majority of the total voting power in a vote scheduled to close on Aug. 7, the SDR allocation will be in effect on Aug. 28.
"The allocation is a prime example of a cooperative monetary response to the global financial crisis," Strauss-Kahn said.
The SDR allocation will be made to IMF members that are participants in the Special Drawing Rights Department (currently all members) in proportion to their existing quotas in the fund, which are based broadly on their relative size in the global economy.
The operation will increase each country's allocation of SDRs by approximately 74 percent of its quota, and fund members' total allocation to an amount equivalent to about 283 billion dollars, from about 33 billion dollars (SDR 21.4 billion).
SDRs allocated to members will count toward their reserve assets, acting as a low cost liquidity buffer for low-income countries and emerging markets and reducing the need for excessive self-insurance. Some members may choose to sell part or all of their allocation to other members in exchange for hard currency -- for example, to meet balance of payments needs -- while other members may choose to buy more SDRs as a means of reallocating their reserves.
In supporting the allocation proposal, the executive board stressed that it should not weaken the pursuit of prudent macroeconomic policies, and should not substitute for a Fund-supported program or postpone needed policy adjustments./.