What is in news : Member nations of the International Monetary Fund have approved the injection of $650 billion SDR to help countries in dealing with mounting debt and economic fallout because of Covid-19 pandemic.
How reserves are allocated by IMF:
- Reserves are allocated to all the 190 members of IMF in proportion to their quota.
- 70 percent of the reserves is allocated to Group of 20 largest economies while 3 percent to low-income countries.
- 58 percent go to advanced economies out of which 42% is allocated to emerging and developing economies.
- Thus, out of $650 billion, $21 billion will go to low-income countries while $212 billion to other emerging market and developing countries.
Special drawing rights (SDRs)
- SDR, created in 1969, are supplementary foreign exchange reserve assets which are maintained and defined by the IMF. SDRs are units of account for IMF but not a currency. They represent claim to currency held by IMF member countries.
- Who allocate SDRs: SDRs are allocated by IMF to countries. It cannot be held or used by private parties.
- The IMF was formed after the Bretton Woods conference in 1944 in USA. The main function of IMF is to help members overcome balance of payments crisis.
- Board of Directors – Annual meeting. 188 members. Country represented by its Finance minister or Central Bank governor.
- Executive board -Daily work of executing decisions of Board of directors. 24 members [all elected], 19 elected by all and 5 “appointed” by Largest quota holders are USA, UK, Japan, Germany, France.
- Managing director – 5 year term and reappointment possible. HQ – Washington.