Experts urge more SDR reforms

An expert in China called for more reforms in the way the International Monetary Fund allocates its Special Drawing Rights or SDRs, and urged a larger share of SDRs for emerging markets and developing countries.

Ding Zhijie, director of the Foreign Exchange Research Center, which is part of the State Administration of Foreign Exchange, said he expects further reform measures in SDR allocations in the future. Such allocations, he said, should be based on different countries' demand for international liquidity.

Such an approach will help emerging markets and developing countries to hedge against risks like inadequate liquidity during the COVID-19 pandemic, he said.

The IMF on Monday approved an allocation of SDRs equivalent to $650 billion to inject liquidity into the global economy and support most vulnerable countries to cope with the COVID-19 impacts. It is by far the largest amount to be allocated in the history of the IMF. About $275 billion, or 42 percent of the new allocation, will go to emerging markets and developing countries, including low-income countries.

Emerging markets and developing countries should receive more shares than the current allocation plan, Ding said.

Such a reform may help make SDRs a multilateral credit arrangement that can address the lack of liquidity in emerging markets and developing countries, he said.

According to the IMF plan on Monday, the SDRs, as a form of foreign exchange reserves, will be allocated to 190 member countries in proportion to their share of the global economy. This method is called a "general allocation".

Kristalina Georgieva, managing director of the IMF, said on Monday the fund will continually explore options to help poorer and more vulnerable countries in their recovery efforts.

One key option is for members that have sufficient global liquidity to voluntarily channel part of their SDRs to scale up lending to low-income countries through the IMF's Poverty Reduction and Growth Trust, which is currently interest-free for the concessional support.

The SDRs, she said, can be exchanged among governments for freely usable currencies in times of need.

The new allocation will become effective on Aug 23.

Finance ministers and central bank governors of G20 economies have urged swift implementation of the general allocation of the SDRs by the end of this month.

During the G20 meeting in early July, participants called on the IMF to work out a plan for member countries to voluntarily channel a share of their allocated SDRs to vulnerable and low-income countries.

China's central bank supports the G20 members committed to advancing the 16th General Review of Quotas of the IMF, according to a PBOC statement issued after the G20 meeting in July. Other experts China Daily spoke to on Tuesday said they hope more SDR reform measures will take effect after the review.