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1 1 (May 19, 2021)

handle is hein.crs/govedja0001 and id is 1 raw text is: ressionai ftesesrch $arvice nt trning th~ ie~isIat~ PA sen*e 1914 May 19, 2021 International Monetary Fund: Special Drawing Rights Allocation Special Drawing Rights (SDRs) are internationalreserve as sets created by the International Monetary Fund (IMF) to supplement member countries' official foreign exchange reserves. In response to the health and economic effects of the Coronavirus Disease 2019 (COVID-19) pandemic, the G-20 finance ministers in April2021 announced their support for an SDR allocation worth approximately $650 billion. (While the IMF has not announced an exact number, an allocation ofsuch size would be approximately SDR 448.5 billion). This would be the first such allocation since the global financial crisis of2008-2009. Some Members of Congress have sponsored legislation calling fora substantially larger SDR allocation (H.R. 986; S. 67). Other Members have expressed concerns about the SDR allocation and sponsoied legislation to strengthen congressional oversight and authority over U.S. support for SDRincreases (H.R. 1513; H.R. 1568). Background on SDRs Centralbanks and other monetary authorities use internationalreserve assets to: (1) supplement domestic holdings of foreign exchangereserves; (2) meet domestic demand for foreign currency; and (3) assist in maintaining the external value of a domestic currency. The IMF created SDRs in 1969 as away to bolster members'reserve holdings: SDRs can be exchanged among IMF members for hard currency and usedin international transactions by central banks and other monetary authorities. IMF member countries, as well as some 15 international organizations such as the European Central Bank, the Bank for International Settlements, and the International Fund for Agriculture and Development, are able to buy and sell SDRs. Private investors and firms are not permitted to engage in SDR trans actions. SDRs derive their value fromthe fact that IMF member countries are willing to hold themand exchange themfor hard currency. A former IMF general counsel, Francois Gianviti compared the SDRto play money: The difference is that... the 'play money' can be used to buyrealas sets and discharge real liabilities and, at the end, realv alue must be returned ifthe allocated SDRs have been spent. The value of SDRs fluctuates with the value of the currencies in its basket. Since 2016, the SDRis equal to the exchange value of a weighted basket of five currencies: the U.S. dollar, the Chinese renminbi, the European euro, the Japanese yen, and the British pound sterling. As ofMay 18, 2021, one SDR equals U.S. $1.44. When an IMF member exchanges their SDR holdings to another IMF member for hard currency, interest is applied. IMF members receive interest on their SDRholdings andpay charges on their total allocations of SDRs at the s ame interest rate. The SDR interest rate is a weighted average of 3-month sovereign bill rates of these currencies. The composition of the SDR basket is reviewed every five years, and was next scheduled to be reviewed by September 30, 2021. In March 2021, IMF members agreed to postpone the review until 2022 due to the ongoing discussions about a new SDR allocation. While the SDR was agreed in principle in 1967, it was not initiated until 1969 after the U.S. passage of the Special Drawing Rights Act of 1968 (22 C.F.R. § 286n). To date, there have been fourrounds of allocations, the mostrecent in 2009, totaling SDR204.20 billion (approximately $294 billion). Figure I. IMF SDR Allocations (To Date) (SDR billions) 182.7 2 9.3 12.1 Round 1 Round 2 Round 3 Current (1970-72) (1979-°81) (2009) Total Source: International Monetary Fund. SDRs are asmall percentage ofglobalforeign reserves. Total currency reserves were $12.70 trillion at the end of 2020. Of the countries that report the currency composition of their foreign exchange reserves, the U.S. dollar accounts for 59% of the total. By contrast, SDR allocations total about $294billion, around 2% oftotalforeign exchange reserves. This is similar to the proportionof globalforeign exchange reserves held in Canadian dollars or Australian dollars. The creation, allocation, and usage of SDRs is separate fromthe IMF's lendingresources According to the rules governing SDRs, SDRs belong to the countries holding themand not to the IMF. COV i -9 Crisis Response & U.S. Policy Ensuring developing countries' access to hard currency has been a priority for international economic policy makers throughout theCOVID-19 pandemic. While advanced economies havebeen able to access centralbank swap arrangements with the Federal Reserve, European Central Bank, and other major central banks, low-income and developing countries havefewer available options. https :/c rs rept 9

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