What You Really Need to Know about the SDR and How to Make it Work for Multilateral Financing of Developing Countries

Abstract

Abstract As of this writing, the Trump Administration has blocked a proposed new allocation of the unique reserve asset issued by the International Monetary Fund (IMF), called the Special Drawing Right (SDR). The proposal has widespread support around the world because it can help ease the financial burden of addressing the Covid-19 pandemic in developing countries and the economic collapse that accompanies it. Moreover, SDRs that sit idle in the reserves of rich countries can be used to financially support developing countries through multilateral institutions. In this way, fiscally strapped donor countries can significantly increase their support for development assistance. However, SDRs are quite esoteric and it seems that the case for a new allocation may be strengthened through a better understanding of what is involved, which is the aim of this paper.