The governing body of the International Monetary Fund has approved a 650 billion dollar expansion in the agency's resources to support economically vulnerable countries battling the coronavirus pandemic and the economic downturn it has caused.
The 190-nation lending institution said in a pressrelease on 2 August that its board of governors approved the expansion of its reserves known as Special Drawing Rights, the largest increase in the institution's history.
"This is a historic decision ... and a shot in the arm for the global economy at a time of unprecedented crisis," IMF Managing Director Kristalina Georgieva said. "It will particularly help our most vulnerable countries struggling to cope with the impact of the Covid-19 crisis."
The general allocation of SDRs will become effective on 23 Aug. The IMF said that the new reserves will be credited to member countries in proportion to their existing quotas with the agency. About 275 billion dollars of the new allocation will go to the world's poorer countries.
The agency is also looking into ways richer countries could voluntarily channel SDRs to poorer countries, the agency said.
The big boost in IMF resources had been rejected by former US President Trump. But after President Joe Biden took office in January, Treasury Secretary Janet Yellen threw her support behind the proposal.
Many Republican members of Congress objected to the SDR increase, saying that the expanded IMF resources would benefit US adversaries such as China, Russia and Iran.
However, the increase in resources was strongly supported by international relief agencies such as Oxfam.
The "new SDRs will bring much-needed liquidity to struggling developing countries without adding to their unsustainable debt burdens," Nadia Daar, head of the Washington-based NGO, said in a statement.
It is "unfathomable that wealthy nations would fail to reallocate a substantial portion of their SDRs -- at least 100 billion dollars as agreed by the G7" at a mid-June summit, she said.
It is also necessary for governments to "work transparently and together with civil society" so that SDRs are used wisely, Daar added.
Key to stabilization
Created in 1969, SDRs are not a currency and have no material existence.
Their value is based on a basket of five major international currencies: the dollar, the euro, the pound, the renminbi or yuan and the yen.
Once issued, SDRs can be used either as a reserve currency that stabilizes the value of a country's domestic currency, or converted into stronger currencies to finance investments.
For poorer countries, the interest is also to obtain hard currencies without having to pay substantial interest rates.