LONDON (CU)_The Group of Seven (G7) intergovernmental organisation has agreed to support the expansion of the International Monetary Fund’s (IMF) reserves for the first time since 2009, in order to help developing nations cope with the COVID-19 pandemic.
The United Kingdom, which will be chairing this year’s G7, said the finance ministers of the world’s seven largest advanced economies agreed to support a “new and sizeable” expansion in the volume of Special Drawing Rights (SDRs), which are foreign exchange reserve assets maintained by the IMF.
“Today’s milestone agreement among the G7 paves the way for crucial and concerted action to support the world’s low-income countries, ensuring that no country is left behind in the global economic recovery from Coronavirus,” UK’s Finance Minister Rishi Sunak said.
Back in 2009, just after the global financial crisis, the allocation of SDRs rose to $293bn, and last year the IMF said it wanted to expand this amount to $500bn.
However, then-United States President Donald Trump opposed to this proposition. Nevertheless, last month, Secretary of the Treasury of the US, Janet Yellen, said she is in favour of an expansion but insisted on greater transparency on how the SDRs would be used.
Sources have revealed that an increase of around $650bn had already been under discussion in the US.
While US domestic law permits the Treasury to approve an SDR allocation which falls below the threshold of about $679bn without Congressional approval, however, the Republicans in the Congress have already raised their concerns regarding such a move which they say would fail to target the countries which are in most need of the funds and would instead provide free cash reserves to Iran, China and other countries considered as adversaries by the previous administration of President Trump.
Nevertheless, any expansions of the SDRs would need approval from countries outside the G7 as well, before the IMF’s meeting in April.
