Have a helping of SDRs
Egypt is among the countries that stand to benefit the most from an IMF proposal to earmark another USD 500 bn in Special Drawing Rights (SDRs) — the IMF’s artificial currency made up of unequal parts USD, EUR, RMB, JPY, and GBP, Barclays said in a note yesterday, according to Bloomberg. The business information service says the SDRs could help countries including Bahrain, Saudi Arabia and South Africa cushion their FX reserves. Emerging market countries would only account for USD 206 bn of the new allocations at most, according to Barclays.
Egypt’s foreign reserves are inching back up to their February 2020 peak, when they had reached USD 45.5 bn. Central bank figures released yesterday showed our reserves are currently at USD 40.2 bn.
What exactly are SDRs, again? SDRs act as a kind of international reserve currency or asset designed to act as a supplement to IMF member countries’ reserves. They were created in 1969 to create an alternative to gold and USD as the only two global reserve assets. While not currencies in themselves, SDRs are held by the fund’s member countries as a way to hedge against their reliance on costly debt to build up stocks of foreign reserves.
Background: The potential new SDR allocation was first floated by the UN a year ago, when emerging markets began running to the IMF for emergency assistance as the reality of the covid-19 economic crisis began to settle in. The Trump administration shot down a proposal for the new issuance last April, saying it would actually not be beneficial for the countries that need it most. Former US Treasury Secretary Steven Mnuchin suggested at the time that, because SDRs are allocated based on shareholding proportions, G20 countries would actually get the vast majority of the new SDRs, while the poorest developing countries would only get around 3%. Current Treasury Secretary Janet Yellen recently came out in support of the issuance, but called for new parameters to ensure the transparent use of the Fund’s reserves.