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After the Allocation: What Role for the Special Drawing Rights System?*

When:
October 18, 2021 @ 2:00 pm – 3:30 pm Europe/Rome Timezone
2021-10-18T14:00:00+02:00
2021-10-18T15:30:00+02:00
Where:
EUI, Badia Fiesolana, Seminar room 3
Cost:
Free

Organisers: Florence School of Banking and Finance (RSCAS) and the EUI Political Economy working group

Tobias Pforr, RSCAS Research Fellow, presents After the Allocation: What Role for the Special Drawing Rights System?*, together with Fabian Pape and Steffen Murau

on 

18 October 14.0015.30 Badia Fiesolana, Seminar room 3

In August 2021, the IMF made a new Special Drawing Right (SDR) allocation to help ease pandemic-induced financial strains in the Global South. This article assesses the potential of the SDR system to address debt-related problems in global finance. We analyze the SDR system as a web of interlocking balance sheets whose members can use SDR holdings—the system’s tradable assets—for conversion into usable currency as a perpetual low-interest loan or to make payments to each other. Using original IMF data, we study how the system has been practically used since 1990. Though widely perceived as a solution in search of a problem in the post-Bretton Woods era, we find that the SDR system provides three mechanisms through which IMF members borrow and lend usable currency to each other, with different strings attached: first, transactions by agreement; second, the IMF’s core lending facilities for which the SDR system offers additional resources; and third, IMF-sponsored Trusts which seek to harness the SDR system for development purposes and are the basis for the current idea of ‘voluntary channelling’. Overall, given the SDR system’s idiosyncratic accounting rules, the new allocation can improve states’ liquidity conditions, albeit less than commonly claimed, but it cannot address solvency issue.

 

The paper will be shared with the registered participants.

 

*Seats are limited and will be offered on a first-come first served basis