On August 23, 2021, the International Monetary Fund (IMF) issued $650 billion equivalent in new Special Drawing Rights (SDRs) to its members. The SDRs do not change any country’s net wealth—each country has a liability that exactly equals the new assets it has been issued—but they do represent a sizable injection of liquidity because the SDRs can be voluntarily exchanged on demand for hard cash—U.S. dollars, euros, yen, renminbi, or other tradable currency. If SDRs are converted and the cash is used to pay down debt, then SDRs can be a mechanism to replace more expensive debt with cheaper debt, improving country creditworthiness. Alternatively, cashed-out SDRs can be used to supplement public revenues to increase spending for countries whose development prospects have been particularly hard hit by the pandemic.
Debt service risks, Special Drawing Rights allocations, and development prospects (brookings.edu)
