LONDON - The world’s top finance ministers are set to back a new $650 billion allocation of the International Monetary Fund’s own currency, Special Drawing Rights, to help low-income countries hit by the coronavirus pandemic.
SDRs are the IMF’s reserve asset, and are exchangeable for dollars, euros, sterling, yen and Chinese yuan or renminbi. An allocation of SDRs requires approval by IMF members holding 85% of the total votes. Because the United States holds 16.5% of the votes, Washington’s view is decisive.HOW DO THEY WORK?
The value of an SDR is set daily based on a basket of five major international currencies: the U.S. dollar , the euro , the Chinese yuan , the Japanese yen and the British pound . Economists at Morgan Stanley say there is a practical reason for the size. The IMF does not have any specific limits on SDR allocations, but U.S. law limits the size of an SDR allocation that the Treasury Secretary can accept and vote for without pre-approval by Congress.