Windreader found this update on the IMF:
This is scheduled for distribution on August 28, 2009.
They still have not sold their gold.
Questions and Answers
Special Drawing Right (SDR) Allocation
Last Updated: July 20, 2009
Q. What is an SDR?
A. The Special Drawing Right (SDR) is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries.
• The SDR is based on a basket of international currencies comprising the U.S. dollar, Japanese yen, euro and pound sterling. It is not a currency, nor a claim on the IMF, but is potentially a claim on freely usable currencies of IMF members. The value of the SDR is not determined by supply and demand in the market, but is set daily by the IMF on the basis of market exchange rates between the currencies included in the SDR basket.
• It can be held and used by member countries, the IMF, and certain designated official entities called "prescribed holders"—but it can not be held, for example, by private entities or individuals. Its status as a reserve asset derives from the commitments of members to hold and accept and to honor various obligations denominated in SDR. The SDR also serves as the unit of account of the IMF and some other international organizations.
Q. What is a general SDR allocation?
A. An SDR allocation is a low cost way of adding to members' international reserves, allowing members to reduce their reliance on more expensive domestic or external debt for building reserves.
• The IMF has the authority under its Articles of Agreement to create unconditional liquidity through "general allocations" of SDRs to participants in its SDR Department (currently, all members of the IMF) in proportion to their quotas in the IMF.
• The IMF's Articles prescribe the conditions under which such allocations can be made, namely that general allocations of SDRs should meet a long-term global need to supplement existing reserve assets in a manner that will promote the attainment of the IMF's purposes and avoid economic stagnation and deflation, as well as excess demand and inflation; and that these allocations should have the broad support of SDR Department participants.
Q. Have SDR allocations happened before?
A. Yes, but on a smaller scale than is being proposed. A cumulative total of SDR 21.4 billion (equivalent to about US$33 billion) has been allocated to members through the following two general allocations:
• SDR 9.3 billion was allocated in yearly installments in 1970–72.
• SDR 12.1 billion was allocated in yearly installments in 1979–81.
Q. What happens to the SDRs once they are allocated?
A. The IMF's SDR Department keeps records of members' SDR allocations and holdings, and all transactions and operations involving SDRs are conducted through the SDR Department.
• After an allocation, members can hold their SDRs as part of their international reserves or may choose to sell part or all of their SDRs. Members can sell and buy SDRs in exchange for currencies in transactions and operations among themselves and with prescribed holders.
• IMF members can also use SDRs in operations and transactions involving the IMF, such as the payment of interest on and repayment of loans, or payment for future quota increases.
Q. Are there any costs involved in using the SDRs or returns from accumulating SDRs?
A. The Fund pays interest to each holder of SDRs, and it makes charges at the same rate on each participant's net cumulative SDR allocations (i.e., the SDRs that were allocated to a member by the Fund in the past, net of any cancellations, which in practice have not taken place to date).
Therefore, in net terms, members receive interest at the SDR interest rate on the amount that their holdings exceed their cumulative allocations. Conversely, if a member's SDR holdings are below its allocation, it incurs a net interest obligation. Interest on SDR holdings and allocations are received and paid quarterly.
Q. What is the SDR interest rate and how is it determined?
A. The SDR interest rate is determined weekly on each Friday and is based on a weighted average of representative interest rates on 3-month debt in the money markets of the four SDR basket currencies (i.e., the US dollar, Japanese yen, euro, and pound sterling).
Q. Is there any other cost associated with holding SDRs?
A. The only other cost borne by members is a very small levy to cover the operational costs of the SDR Department. This levy has recently amounted only to about one-hundredth of one percent of the cumulative allocation of each participant.
Q. How does the SDR market work?
A. For more than two decades, the SDR market has functioned purely on voluntary basis.
• Thirteen Fund members and one prescribed SDR holder have cooperated voluntarily with the Fund by making standing arrangements to buy and sell SDRs.
• The Fund facilitates transactions between members seeking to sell or buy SDRs and these counterparties to the voluntary agreements that effectively make a market in SDRs.
• In the event that there are not enough voluntary buyers of SDRs, the IMF can designate members with strong balance of payments positions to provide freely usable currency in exchange for SDRs. This so-called "designation mechanism" ensures that a participant can use its SDRs to readily obtain an equivalent amount of currency if it has a need for such a currency because of its balance of payments, its reserve position, or developments in its reserves.
The Proposed SDR Allocation of US$250 Billion
Q. Why is the IMF planning a general SDR allocation?
A. The proposed general allocation of US$250 billion responds to the call by the G-20 Heads of State and IMF's International Monetary and Financial Committee (IMFC) at their respective meetings in April.
• It is a prime example of a cooperative monetary response to the global financial crisis: by providing significant unconditional financial resources to liquidity constrained countries, it would smooth the need for adjustment and add to the scope for expansionary policies, where needed in the face of deflation risks.
• This is particularly important for emerging market and low-income countries that have been hit hard by the current global economic crisis. Over the longer term, the allocation could also reduce the need for pursuing destabilizing and costly reserve accumulation policies that could contribute to global imbalances.
Q. When will the proposed $250 billion general allocation of SDRs take place?
A. The Board of Governors are due to vote by August 7. Assuming they vote in favor, the SDR allocation could be implemented on August 28.
Q. How will the SDR allocation be shared among members?
A. The allocation will be based on each country's existing IMF quota. The US$250 billion total will equate to around 74.13 percent of eligible participants' quota. Emerging markets and developing countries as a group would account for almost US$100 billion of the total, including over US$18 billion for low-income countries.
Q. Will the new SDR allocation take into account the 2008 Quota and Voice reforms?
A. The quotas agreed under the 2008 quota and voice reforms will not be used in light of the proposed timeframe for the allocation which, given current economic circumstances, is proposed to take place in one step on August 28 on the basis of each member's existing quota. The quotas agreed under the 2008 Quota and Voice reforms will not come into effect before the adoption of the amendment on voice and participation and it's not likely that acceptance of this amendment by at least three-fifths of members with 85 percent of the total voting power will be reached within the timeframe of the SDR allocation.
Q. Will the voluntary market be liquid enough following the proposed allocation?
A. The SDR allocation is expected to result in an increased volume of transactions initiated by members seeking to exchange SDRs for freely usable currencies. On the other hand, some members may wish to acquire more SDRs for reserve management purposes.
• The Fund is seeking agreement on the establishment of new voluntary arrangements and the enlargement of existing agreements to ensure that increased demand for sales/purchases of SDRs will continue to be met fully through voluntary transactions after the forthcoming allocations.
• In any case, the designation mechanism remains a backstop and will ensure that a country that wishes to sell SDRs to meet a balance of payments need can always obtain the requisite amount of freely usable currencies without delay.
Q. Would the planned SDR allocation be inflationary?
A. Not likely.
• The size of the allocation is small relative to global GDP (⅓ of 1 percent), trade (less than 1 percent), and reserves (3 percent).
• With a global output gap projected to persist through 2014—by which point any expansionary impact of early spending of the SDR allocation should have dissipated—the allocation is unlikely to generate significant inflationary pressure.
Q. What about the proposed 4th Amendment special allocation?
A. A special one-time allocation was proposed in 1997 under what is known as the 4th Amendment of the IMF's Articles of Agreement. It would allow members to participate equitably in the SDR system, even if they joined after previous SDR allocations (42 members have never received an allocation).
• The proposed 4th Amendment provides for a special allocation of SDRs that will raise the ratios of members' cumulative SDR allocations quota using a common benchmark ratio as described in the amendment. The 4th Amendment will become effective for all members when the Fund certifies that three fifths of the membership having 85 percent of the total voting power have accepted it.
• By June 30, 2009, 132 members having 77.7 percent of the total voting power had accepted the Fourth Amendment. Acceptance by the United States , which holds 16.74 percent of the voting power, and which recently adopted legislation that will authorize U.S. support for the 4th Amendment, would take votes for the measure past the required 85 percent of members' voting power. The special allocation will be implemented 30 days after the 4th Amendment becomes effective.
This is scheduled for distribution on August 28, 2009.
They still have not sold their gold.
Questions and Answers
Special Drawing Right (SDR) Allocation
Last Updated: July 20, 2009
Q. What is an SDR?
A. The Special Drawing Right (SDR) is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries.
• The SDR is based on a basket of international currencies comprising the U.S. dollar, Japanese yen, euro and pound sterling. It is not a currency, nor a claim on the IMF, but is potentially a claim on freely usable currencies of IMF members. The value of the SDR is not determined by supply and demand in the market, but is set daily by the IMF on the basis of market exchange rates between the currencies included in the SDR basket.
• It can be held and used by member countries, the IMF, and certain designated official entities called "prescribed holders"—but it can not be held, for example, by private entities or individuals. Its status as a reserve asset derives from the commitments of members to hold and accept and to honor various obligations denominated in SDR. The SDR also serves as the unit of account of the IMF and some other international organizations.
Q. What is a general SDR allocation?
A. An SDR allocation is a low cost way of adding to members' international reserves, allowing members to reduce their reliance on more expensive domestic or external debt for building reserves.
• The IMF has the authority under its Articles of Agreement to create unconditional liquidity through "general allocations" of SDRs to participants in its SDR Department (currently, all members of the IMF) in proportion to their quotas in the IMF.
• The IMF's Articles prescribe the conditions under which such allocations can be made, namely that general allocations of SDRs should meet a long-term global need to supplement existing reserve assets in a manner that will promote the attainment of the IMF's purposes and avoid economic stagnation and deflation, as well as excess demand and inflation; and that these allocations should have the broad support of SDR Department participants.
Q. Have SDR allocations happened before?
A. Yes, but on a smaller scale than is being proposed. A cumulative total of SDR 21.4 billion (equivalent to about US$33 billion) has been allocated to members through the following two general allocations:
• SDR 9.3 billion was allocated in yearly installments in 1970–72.
• SDR 12.1 billion was allocated in yearly installments in 1979–81.
Q. What happens to the SDRs once they are allocated?
A. The IMF's SDR Department keeps records of members' SDR allocations and holdings, and all transactions and operations involving SDRs are conducted through the SDR Department.
• After an allocation, members can hold their SDRs as part of their international reserves or may choose to sell part or all of their SDRs. Members can sell and buy SDRs in exchange for currencies in transactions and operations among themselves and with prescribed holders.
• IMF members can also use SDRs in operations and transactions involving the IMF, such as the payment of interest on and repayment of loans, or payment for future quota increases.
Q. Are there any costs involved in using the SDRs or returns from accumulating SDRs?
A. The Fund pays interest to each holder of SDRs, and it makes charges at the same rate on each participant's net cumulative SDR allocations (i.e., the SDRs that were allocated to a member by the Fund in the past, net of any cancellations, which in practice have not taken place to date).
Therefore, in net terms, members receive interest at the SDR interest rate on the amount that their holdings exceed their cumulative allocations. Conversely, if a member's SDR holdings are below its allocation, it incurs a net interest obligation. Interest on SDR holdings and allocations are received and paid quarterly.
Q. What is the SDR interest rate and how is it determined?
A. The SDR interest rate is determined weekly on each Friday and is based on a weighted average of representative interest rates on 3-month debt in the money markets of the four SDR basket currencies (i.e., the US dollar, Japanese yen, euro, and pound sterling).
Q. Is there any other cost associated with holding SDRs?
A. The only other cost borne by members is a very small levy to cover the operational costs of the SDR Department. This levy has recently amounted only to about one-hundredth of one percent of the cumulative allocation of each participant.
Q. How does the SDR market work?
A. For more than two decades, the SDR market has functioned purely on voluntary basis.
• Thirteen Fund members and one prescribed SDR holder have cooperated voluntarily with the Fund by making standing arrangements to buy and sell SDRs.
• The Fund facilitates transactions between members seeking to sell or buy SDRs and these counterparties to the voluntary agreements that effectively make a market in SDRs.
• In the event that there are not enough voluntary buyers of SDRs, the IMF can designate members with strong balance of payments positions to provide freely usable currency in exchange for SDRs. This so-called "designation mechanism" ensures that a participant can use its SDRs to readily obtain an equivalent amount of currency if it has a need for such a currency because of its balance of payments, its reserve position, or developments in its reserves.
The Proposed SDR Allocation of US$250 Billion
Q. Why is the IMF planning a general SDR allocation?
A. The proposed general allocation of US$250 billion responds to the call by the G-20 Heads of State and IMF's International Monetary and Financial Committee (IMFC) at their respective meetings in April.
• It is a prime example of a cooperative monetary response to the global financial crisis: by providing significant unconditional financial resources to liquidity constrained countries, it would smooth the need for adjustment and add to the scope for expansionary policies, where needed in the face of deflation risks.
• This is particularly important for emerging market and low-income countries that have been hit hard by the current global economic crisis. Over the longer term, the allocation could also reduce the need for pursuing destabilizing and costly reserve accumulation policies that could contribute to global imbalances.
Q. When will the proposed $250 billion general allocation of SDRs take place?
A. The Board of Governors are due to vote by August 7. Assuming they vote in favor, the SDR allocation could be implemented on August 28.
Q. How will the SDR allocation be shared among members?
A. The allocation will be based on each country's existing IMF quota. The US$250 billion total will equate to around 74.13 percent of eligible participants' quota. Emerging markets and developing countries as a group would account for almost US$100 billion of the total, including over US$18 billion for low-income countries.
Q. Will the new SDR allocation take into account the 2008 Quota and Voice reforms?
A. The quotas agreed under the 2008 quota and voice reforms will not be used in light of the proposed timeframe for the allocation which, given current economic circumstances, is proposed to take place in one step on August 28 on the basis of each member's existing quota. The quotas agreed under the 2008 Quota and Voice reforms will not come into effect before the adoption of the amendment on voice and participation and it's not likely that acceptance of this amendment by at least three-fifths of members with 85 percent of the total voting power will be reached within the timeframe of the SDR allocation.
Q. Will the voluntary market be liquid enough following the proposed allocation?
A. The SDR allocation is expected to result in an increased volume of transactions initiated by members seeking to exchange SDRs for freely usable currencies. On the other hand, some members may wish to acquire more SDRs for reserve management purposes.
• The Fund is seeking agreement on the establishment of new voluntary arrangements and the enlargement of existing agreements to ensure that increased demand for sales/purchases of SDRs will continue to be met fully through voluntary transactions after the forthcoming allocations.
• In any case, the designation mechanism remains a backstop and will ensure that a country that wishes to sell SDRs to meet a balance of payments need can always obtain the requisite amount of freely usable currencies without delay.
Q. Would the planned SDR allocation be inflationary?
A. Not likely.
• The size of the allocation is small relative to global GDP (⅓ of 1 percent), trade (less than 1 percent), and reserves (3 percent).
• With a global output gap projected to persist through 2014—by which point any expansionary impact of early spending of the SDR allocation should have dissipated—the allocation is unlikely to generate significant inflationary pressure.
Q. What about the proposed 4th Amendment special allocation?
A. A special one-time allocation was proposed in 1997 under what is known as the 4th Amendment of the IMF's Articles of Agreement. It would allow members to participate equitably in the SDR system, even if they joined after previous SDR allocations (42 members have never received an allocation).
• The proposed 4th Amendment provides for a special allocation of SDRs that will raise the ratios of members' cumulative SDR allocations quota using a common benchmark ratio as described in the amendment. The 4th Amendment will become effective for all members when the Fund certifies that three fifths of the membership having 85 percent of the total voting power have accepted it.
• By June 30, 2009, 132 members having 77.7 percent of the total voting power had accepted the Fourth Amendment. Acceptance by the United States , which holds 16.74 percent of the voting power, and which recently adopted legislation that will authorize U.S. support for the 4th Amendment, would take votes for the measure past the required 85 percent of members' voting power. The special allocation will be implemented 30 days after the 4th Amendment becomes effective.