The Group of Seven (G7) members have agreed to support the first expansion of the International Monetary Fund’s (IMF’s) reserves since 2009 aimed at helping developing countries cope with the economic impacts of Coronavirus (COVID-19).
The G7 consists of world’s most developed economies which include Canada, France, United Kingdom (U.K.), Italy, Germany, Japan and the United States (U.S.). U.K., which is chairing the G7 this year said that the Finance Ministers of G7 members has agreed to support a new and sizeable increase in the volume of Special Drawing Rights (SDRs).
The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. So far SDR 204.2 billion (U.S. $ 293 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis.
Speaking on the occasion, the Chancellor of the Exchequer, U.K. – Rishi Sunak said, “Today’s milestone agreement among the G7 paves the way for crucial and concerted action to support the world’s low-income countries, ensuring that no country is left behind in the global economic recovery from coronavirus.”
Taking it to twitter, Rishi Sunak tweeted,
Today's agreement with my fellow @G7 Finance Ministers to support a new @IMFNews Special Drawing Rights allocation marks an important moment in our path to a truly global economic recovery from the coronavirus crisis. #G7UK
— Rishi Sunak (@RishiSunak) March 19, 2021
Read more: https://t.co/MAQb5PNNcO pic.twitter.com/8tKVNx3lrf
The Managing Director of IMF – Kristalina Georgieva said that the G7 finance ministers’ meeting was productive.
Kristalina tweeted,
Productive #G7 finance ministers led by the UK! IMF will continue to support vulnerable member countries. Vital to step up in four areas: SDR allocation, debt vulnerabilities, concessional finance, strong policy actions by countries. https://t.co/xQrdAaQgyb pic.twitter.com/Gtcbdm9pCP
— Kristalina Georgieva (@KGeorgieva) March 19, 2021
Earlier in 2020, the IMF said it wanted the allocation of SDRs to rise to the equivalent of U.S. $ 500 billion from the U.S. $ 293 billion agreed at the time of the last expansion in 2009. That expansion was opposed by then-President – Donald Trump. With new President Joe Biden coming to power, the U.S. Treasury Secretary – Janet Yellen said she would like an expansion of SDR but with greater transparency about how the SDRs would be used and traded.
Any expansion of SDRs will also need to be agreed with countries outside the G7, including China and other G20 member states, before the IMF’s spring meeting in April 2020. Credit ratings agency Fitch said an increase in SDRs to U.S. $ 500 billion would be equivalent to 0.5% of global annual economic output and represent 3.5% of global financial reserves.
In the longer run, SDRs serve as a stable reserve asset that provides advantages over borrowed assets as countries’ financing needs in response to the crisis over the coming years will continue to be high.
