IMF Could Consider a New Allocation of Special Drawing Rights
June 3, 2010
The International Monetary Fund could consider a new allocation of special drawing rights to help ease the euro zone debt crisis that has rattled global markets for months, an IMF director said on Thursday.
Special drawing rights are an international reserve asset created by the IMF that are used as a unit of payment on IMF loans and are made up of a basket of currencies.
Last year, the IMF transferred an allocation of $250 billion in special drawing rights to its 186 country members, in efforts to spur global liquidity amid the financial crisis — tapping a resource that hadn’t been used in 30 years. That is something the IMF could do again, said Paulo Nogueira Batista, who represents Brazil and eight other countries at the IMF board.
A fiscal crisis in the euro zone has shaken financial markets in recent weeks and there are fears that the fiscal austerity dictated by a $1 trillion rescue plan agreed by the European Union and the IMF could compromise an already hobbled recovery.
“One possibility is to propose a new allocation of SDR’s,” Batista told Reuters during a visit to Brasilia. “This would give an injection of international liquidity.”
The IMF saw its international clout revived with the global financial crisis of 2008, as advanced economies scraped for funds to attenuate the worst slump in the global economy in decades.
The global financial crisis, which originated in the U.S. housing market, sparked a growing discussion among policy makers and academics that the world should no longer rely on a single, dominant currency, such as the dollar, as it has done since the end of the gold standard.
Nobel Prize-winning economist Joseph Stiglitz even called for a new global reserve system, saying the least ambitious option could be a system based on the SDR’s.
The SDR is made up of a basket of euro, yen, sterling and dollars. Part of efforts to diversify global reserves could be done by broadening the currencies that make up the SDR basket, Nogueira said.
Brazil’s finance minister, Guido Mantega, on Wednesday said he was proposing to the head of the IMF, Dominique Strauss-Kahn, that special drawing rights be convertible into the Chinese yuan and the Brazilian real.
“It is not inconceivable that the basket of currencies that make up the SDR be broadened to include currencies such as the Chinese yuan and the Brazilian real,” Nogueira said.
Brazil’s clout on the world stage has been growing, thanks to the country’s economic prowess and President Luiz Inacio Lula da Silva’s diplomatic efforts.
As part of efforts to project itself as a global player, Brazil has sought more representation in international institutions like the IMF, but Nogueira said the process was moving too slowly.
“It’s a battle. The Europeans are very resistant to change,” Nogueira said, adding that he was speaking in a personal capacity.
The IMF steering committee supported an agreement struck by the Group of 20 leading industrialized and developing economies to shift at least 5 percent of the IMF’s voting power to developing countries. Officials from emerging countries have said that was not enough.
Asked whether he thought developing economies would achieve the 7 percent shift in voting power they were after at the IMF, Nogueira said: “It will be very difficult.”
http://in.reuters.com/
June 3, 2010
The International Monetary Fund could consider a new allocation of special drawing rights to help ease the euro zone debt crisis that has rattled global markets for months, an IMF director said on Thursday.
Special drawing rights are an international reserve asset created by the IMF that are used as a unit of payment on IMF loans and are made up of a basket of currencies.
Last year, the IMF transferred an allocation of $250 billion in special drawing rights to its 186 country members, in efforts to spur global liquidity amid the financial crisis — tapping a resource that hadn’t been used in 30 years. That is something the IMF could do again, said Paulo Nogueira Batista, who represents Brazil and eight other countries at the IMF board.
A fiscal crisis in the euro zone has shaken financial markets in recent weeks and there are fears that the fiscal austerity dictated by a $1 trillion rescue plan agreed by the European Union and the IMF could compromise an already hobbled recovery.
“One possibility is to propose a new allocation of SDR’s,” Batista told Reuters during a visit to Brasilia. “This would give an injection of international liquidity.”
The IMF saw its international clout revived with the global financial crisis of 2008, as advanced economies scraped for funds to attenuate the worst slump in the global economy in decades.
The global financial crisis, which originated in the U.S. housing market, sparked a growing discussion among policy makers and academics that the world should no longer rely on a single, dominant currency, such as the dollar, as it has done since the end of the gold standard.
Nobel Prize-winning economist Joseph Stiglitz even called for a new global reserve system, saying the least ambitious option could be a system based on the SDR’s.
The SDR is made up of a basket of euro, yen, sterling and dollars. Part of efforts to diversify global reserves could be done by broadening the currencies that make up the SDR basket, Nogueira said.
Brazil’s finance minister, Guido Mantega, on Wednesday said he was proposing to the head of the IMF, Dominique Strauss-Kahn, that special drawing rights be convertible into the Chinese yuan and the Brazilian real.
“It is not inconceivable that the basket of currencies that make up the SDR be broadened to include currencies such as the Chinese yuan and the Brazilian real,” Nogueira said.
Brazil’s clout on the world stage has been growing, thanks to the country’s economic prowess and President Luiz Inacio Lula da Silva’s diplomatic efforts.
As part of efforts to project itself as a global player, Brazil has sought more representation in international institutions like the IMF, but Nogueira said the process was moving too slowly.
“It’s a battle. The Europeans are very resistant to change,” Nogueira said, adding that he was speaking in a personal capacity.
The IMF steering committee supported an agreement struck by the Group of 20 leading industrialized and developing economies to shift at least 5 percent of the IMF’s voting power to developing countries. Officials from emerging countries have said that was not enough.
Asked whether he thought developing economies would achieve the 7 percent shift in voting power they were after at the IMF, Nogueira said: “It will be very difficult.”
http://in.reuters.com/