Correction of the record: Claims that the SDR “helps the enemies of the United States” are unfounded

In August last year, the International Monetary Fund (IMF) responded to the COVID-19 pandemic and the resulting global economic crisis with a new allocation of $650 billion in Special Drawing Rights (SDRS). These assets supplement countries’ foreign reserve holdings, helping to stabilize their finances and avoid balance-of-payments crises, which can cause severe economic damage and increase poverty and mortality. SDRs can also be exchanged for hard currency by countries in need, in order to invest in economic recovery plans and to import basic commodities, including vaccines and medical equipment.

Last year’s allocation came at no cost to the United States, and has proven invaluable to developing countries around the world. Already, 99 countries – including Ukraine – have benefited from their allocations to stabilize their currencies, shore up reserves, pay off debt, or finance healthcare and other urgent needs.

But for many, last year’s allotment was not enough. On top of the ongoing fallout from the pandemic, the fallout from Russia’s invasion of Ukraine will reverberate around the world, with soaring food and fuel prices hurting developing countries even more. The need to put more SDRs in the hands of developing countries – through new allocations and through the transfer of existing SDRs from rich to poor countries – is more urgent than ever. But misinformation, and false information in particular, continues to emerge.

Claim:

The United States should oppose a new allocation, or recycling of SDRs, because SDRs will be used by authoritarian governments, competitors, and countries subject to U.S. sanctions, such as Russia.

the truth:

Sanctioned countries like Russia he does not have, And almost certainly, Will not be able to use their SDR.

  • Afghanistan, Belarus, Iran, Myanmar, Russia, Sudan, Syria and Venezuela, all countries facing wide-ranging financial sanctions, have not used any of the SDRs since the August allocation. Regardless of one’s position on the use and effectiveness of economic sanctions, claims that more SDR distribution would beneficially benefit these countries have been proven wrong.[1]

  • Countries whose central banks are subject to sanctions, including Iran and Russia, have virtually been unable to use the new SDRs, because converting SDRs into hard currency requires another party to exchange with them. Sanctions and the threat of secondary sanctions have prevented other countries, including China, from playing this role. In theory, the IMF could require rich countries to provide cash for SDRs, but as an article by the Center for Global Development explains, the United States and its European allies could easily ignore instructions of this kind without negative consequences.

  • Iran, an IMF member country with an IMF-recognized government and whose central bank is not yet subject to EU sanctions, has been unable to access or use the new SDRs, because other banks are not willing to convert currency to the Central Bank of Iran and face possible secondary sanctions from the United States.

  • Even the branch of the Saudi-backed Central Bank of Yemen recognized by the International Monetary Fund, which is not subject to US sanctions, but is a warring party, has not been able to find a trading partner for the SDR, even among its close allies.

  • Some countries, such as Afghanistan and Venezuela, have not been able to use their new SDRs because the International Monetary Fund, in addition to sanctions against it, does not recognize their governments. When the director of the International Monetary Fund requests the suspension of recognition of a country’s government, the Executive Board requests the consent of the United States in order to recognize it again.

  • Cuba and North Korea are not members of the International Monetary Fund, and therefore have not received any quota from the SDR issuance.

China – much like the US – does not need its own SDR, and is unlikely to ever use it.

  • China has over $3 trillion in foreign reserves, and the renminbi is a major globally traded currency included in the basket of currencies used to determine the value of the SDR. China has the resources and monetary policy tools to maintain a stable financial environment. It hasn’t used its 2021 SDR allocation and it’s hard to imagine a situation it might, under IMF rules.

  • In fact, instead of using the SDR, China pledges a quarter of its SDR allocation to Africa, playing the role of Provider Liquidity by purchasing special drawing rights held by poor countries. The Biden administration also planned to transfer several SDRs to countries in need, but Republicans in Congress were prevented from doing so.

While some have misleadingly cited Russia’s invasion of Ukraine as a reason to oppose the SDR, the war in Ukraine is actually More Reason to support SDR allocation and recycling.

  • The 2021 SDR allocation has been very beneficial to Ukraine, which was under serious financial stress, even before the invasion. Ukraine has already used its entirety for 2021.

  • A new allocation, or recycling of the SDR, would help Ukraine even more. Ukraine has already used almost all the SDR it got from last year’s allocation and more recently Request Getting more Special Drawing Rights from the IMF in order to stabilize its financial resources.

  • The International Monetary Fund predicts that the Russian invasion of Ukraine, and later restrictions on the Russian economy, will have a “severe impact” on the global economy. Fuel and food prices are on the rise, the latter a major indicator of social unrest and political instability. This, combined with the already slow recovery of the pandemic, makes it all the more urgent to put the SDR in the hands of vulnerable countries.

  • While directing aid to specific countries would be welcome, the allocation of SDRs and recycling of SDRs held by the United States are some of the fastest and most direct tools available to help all developing countries facing this crisis — and a new allocation will come at no cost to United State.

See here for more validations of common arguments used by opponents of SDRs.


[1] Although Myanmar and Afghanistan did not access or use their SDRs, the IMF automatically debited their accounts to cover the simple regular fees.

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