The case for rerouting SDRs through Multilateral Development Banks
The creation by the International Monetary Fund in August 2021 of the equivalent of USD 650bn of Special Drawing Rights (SDRs) has raised considerable hope. SDRs provide unconditional liquidity that recipient countries can exchange against hard currencies (e.g., US dollars, Euros, etc.)
The problem is that the allocation has favored disproportionately rich countries. For instance, G7 countries received almost nine times what Africa received.
The rechanneling of such SDRs to countries that need them most in a post-COVID and climate change perspective has made insufficient progress, beyond recycling them through the IMF itself.
This Lazard Policy Brief argues that a pragmatic approach toward defining a ‘Reserve Asset’ would help magnify the effect of the allocation through Multilateral Development Banks (e.g., African Development Bank, West African Development Bank, Inter-American Development Bank etc.), which are best placed to allocate concessional money to green and sustainable projects.