A State of Play on SDRs – January 2024

This policy brief provides an overview of the Special Drawing Rights (SDR) agenda: what is being done with the world’s $108 billion in SDR rechanneling pledges, and what is left to do. It covers the primary conduits for rechanneling SDRs: the IMF’s Poverty Reduction & Growth Trust (PRGT) and Resilience & Sustainability Trust (RST). It notes that in order for the PRGT to be scaled up and receive more SDRs, IMF members must urgently address shortfalls in the PRGT’s subsidy account — one solution being small sales of the IMF’s $186 billion in gold. It also notes that in order for the RST to be scaled up and receive more SDRs, the IMF must develop the institutional capacity to develop RST programs more quickly. Given the financial and operational constraints on the PRGT and RST, this paper covers rechanneling to the multilateral development banks (MDBs). It discusses the power and appeal of the hybrid capital proposal, as well as the legal, technical, political, and geopolitical limitations in its uptake. Given the limitations placed on countries’ foreign exchange reserves (including their SDRs), it advocates a shift to ‘normal currency’ hybrid capital for countries that cannot contribute SDRs — thus making use of more manageable budget resources. It also re-introduces the proposal for an SDR-denominated, cash-settled bond. Particularly with respect to the International Development Association (IDA), it discusses how the inexpensive, long-term financing offered by an SDR bond would be valuable for MDBs that are currently only able to access more expensive and shorter-term financing from capital markets. In addition, it discusses how an SDR bond would align with countries’ rules on the use of foreign-exchange reserves.