International Monetary Fund headquarters in Washington, D.C., in 2018. (Yuri Gripas/Reuters) But will the countries it purportedly seeks to help?
As last week’s meeting of G-20 finance ministers in Venice, Italy, wrapped up, there was one big winner: the International Monetary Fund (IMF). Under the guise of assisting countries in their efforts to finance COVID-relief efforts, the IMF will issue $650 billion in special drawing rights (SDRs). That’s a whopping 120 percent increase in the stock of outstanding SDRs. These will be distributed to the IMF’s 190 member countries in proportion to their quotas.
SDRs are a reserve asset — a kind of “paper gold,” to use a self-contradictory description — created out of thin air by the IMF. They were first issued in 1969 when experts at the IMF feared that there would be a shortage of international reserves and a liquidity squeeze that would result in a worldwide deflation. As is often the case, though, the experts were wrong. Since 1969, there has been an explosion in world reserves via the accumulation of U.S. dollars by foreign countries. Contrary to the experts’ expectations, SDRs have proven to be unimportant in that respect.