Why IMF Help for Poor Nations Will Benefit Rich Ones

The International Monetary Fund’s member nations are nearing their biggest resource injection in its history, $650 billion, to boost global liquidity and help emerging and low-income nations deal with mounting debt and Covid-19. The choice of vehicle -- reserves known as special drawing rights, to be allocated on Aug. 23 -- has drawn some criticism. U.S. President Joe Biden reversed the stance of his predecessor, Donald Trump, that the IMF plan didn’t do enough to target the aid to poorer countries. The U.S. is the IMF’s largest shareholder and carries a de facto veto on such matters.

SDRs are an international reserve asset that can be converted into five currencies: the dollar, euro, yen, British pound and yuan. When SDRs are allocated by the IMF, recipient nations can hold them as part of their foreign currency reserves or exchange them for the hard currency of other IMF members. (The seller pays 0.05% interest on such sales if its SDR holdings dip below its IMF-allotted level.) The appeal of SDRs to poorer nations is that they come condition-free, unlike many of the fund’s loan programs.