Publications /
Opinion

Back
Helicopter Reserves to the Rescue
September 1, 2021

The world woke on Monday August 23 to higher international reserves for all countries. A new allocation of US$650 billion in Special Drawing Rights (SDRs) from the International Monetary Fund (IMF) to its member countries had entered into force (SDR450 billion).

SDRs are an international reserve asset created by the IMF and added to countries' other foreign reserves. It is not a currency that can be used by private agents. Governments, on the other hand, can unconditionality exchange SDRs for currency from other countries and can thus make payments with the latter. It is, therefore, a supplement to countries' foreign reserves, without depending on the issuance of external or domestic debt for its acquisition.

SDR allocations don’t happen often. SDRs were created in 1969 and their general allocations are made to IMF member countries according to their quotas in the Fund. The IMF has the right to ask for SDR cancellation, but that has never happened. Previous general allocations happened in 1970-72, 1979-81 and 2009, accompanied by a special allocation in the latter case. The extraordinary character of the allocation this time is seen in the fact that its amount corresponds to more than double the sum of all allocations made to date.

The exceptional circumstances of the pandemic crisis, putting the external accounts of many economies in a precarious situation, were the motivation. But as allocations follow country IMF quotas, relief for those in need of reserves will come as an excess in other cases.

The SDR value is calculated daily by the IMF based on a basket of international currencies which, in fixed proportions, currently includes the US dollar, Japanese yen, euro, pound sterling and Chinese renminbi. The composition of the basket is reassessed every five years.

SDRs are an asset that simultaneously pays and charges interest. It all depends on the balance between the allocations received by the country and their use. If a country does not use its SDRs, interest income and payments outweigh each other, and the cost is zero.

The SDR interest rate is set weekly as a weighted average of interest rates on short-term government bonds in the money markets of the countries of the basket. It is currently at its floor:  0.05% (Figure 1). At least in the case of non-advanced economies, it is still below the rates charged by the markets.

PCNS

There is, therefore, even a potential pecuniary advantage to using SDR to redeem other external debts. Everything depends, however, on institutional arrangements within countries, particularly regarding who holds foreign reserves and manages foreign exchange flows, and the transfer of resources from central banks to the Treasury. In about 70% of countries, central banks are the SDR recipients, while in the U.S., for example, SDR assets and liabilities are recorded on the government balance sheet.

President Lopez Obrador of Mexico, for example, has already referred to using the opportunity to prepay external public debt. Although local law does not allow transfers from the central bank to the executive, the government can acquire reserves other than SDR if it holds balances in Mexican pesos with the central bank, as part of public debt management. Basically, this would result in an exchange of hard currency reserves for the added SDRs.

China has added another $41.6 billion to its already high reserves, Brazil another $15.1 billion and 35 advanced economies another $399 billion. On the other hand, the arrival of reserves in the form of SDRs will be extremely welcome and will give some breathing space to countries including Argentina, Ecuador, and El Salvador in Latin America, and several countries in other regions (Sri Lanka, Zambia, Liberia, etc.). Venezuela will receive its allocation, but without unconditional access, given that the Maduro government is not recognized as legitimate by more than 50 member countries, including the largest shareholder, the U.S.

The increase in reserves globally will not have a great impact, being equivalent to something around 0.7% of the world GDP. However, it will provide a lifeline, temporary or not, for countries facing low reserves and high external financing requirements.

Sub-Saharan Africa received a small share of the newly created SDRs (Figure 2, left side). However, these amounts will be substantial as a share of GDP in some cases (Figure 2, right side).

PCNS

As a next step, the IMF has set out to find ways in which countries with SDR surpluses can voluntarily channel them to those in need. For example, they can be lent to the fund that the IMF uses to make concessional loans to low-income countries (Poverty Reduction and Growth Trust, PRGT), or to another fund to be created to help more vulnerable countries undertake structural transformations, including adaptation to climate change (Resilience and Sustainability Trust, RST).

Surplus SDR could also be channeled to support lending by multilateral development banks and even given as donations to the concessional arm of the World Bank: The International Development Agency (IDA). The development impact of the SDR allocation can be magnified. The fact is that creation of SDR following IMF quotas provided a very small share for low-income countries (69 economies that will receive US$21.2 billion), while they are precisely the most negatively affected by the crisis, with slower vaccination rates and the worst debt problems.

As noted in a report by Alberto Ramos and Daniel Moreno (Goldman Sachs, July 20), the increase in SDR stocks does not automatically correspond to an increase in the money supply in the global economy. The use of SDR only transfers hard currency from one country to another, with corresponding changes in the composition of reserves. There will only be such an increase in the money supply if the central bank that issues the hard and convertible currency granted in exchange for the SDR does not sterilize its monetary impact.

SDRs, therefore, do not constitute money thrown from a helicopter, as in the famous image used by Nobel Prize-winning economist Milton Friedman in 1969, and cited in Ramos and Moreno's Helicopter Reserves report. But one cannot deny that this allocation fell from the sky at a good time for economies struggling with a shortage of reserves and with immediate needs for external financing.

 

The opinions expressed in this article belong to the author.

RELATED CONTENT

  • Authors
    Aram Belhadj
    June 24, 2025
    Les politiques industrielles semblent marquer leur retour, aussi bien dans les grandes puissances économiques que dans les pays émergents et en voie de développement, notamment après la pandémie de la Covid-19, l’accroissement des tensions géopolitiques et commerciales et les effets du changement climatique.L’Afrique n’est pas en reste, surtout qu’une prise de conscience des enjeux liés à la position continentale dans un monde multipolaire est en train de naître. Même au niveau de l ...
  • June 23, 2025
    President Donald Trump's "Reciprocal Tariff" policy, announced on April 2, 2025 (dubbed "Liberation Day"), represents one of the most significant shifts in U.S. trade policy in nearly a century. Trump’s policy imposes a baseline 10% tariff on all imports and additional country-specific tariffs that range from 10% to 50% for countries designated as having "non-reciprocal trading practices" with the U.S. These specific tariffs are determined based on each country’s bilateral trade bal ...
  • Authors
    El Hussein Fouad
    June 17, 2025
    This paper analyses the stabilization experience in the MENA region, focusing on Egypt, Morocco, Tunisia, and Jordan over the past century. It seeks to answer the question: To what extent have these countries succeeded in achieving resilience to shocks and stresses? Key policy elements included significant fiscal adjustments—varying in scale across countries—and exchange rate developments supported by monetary policies aimed at combating inflationary pressures. The outcomes involved ...
  • Authors
    Pepe Zhang
    Fernando Straface
    June 13, 2025
    This Paper was originally published on cebri.org Within an ever-evolving system of multilateral development banks (MDB) currently reshaped by four structural geo-economic trends, the emergence of new MDBs like the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) carries great geopolitical significance. Yet the new MDBs, attuned to institutional and operational realities, have not upended the MDB system. Their relationship with long-e ...
  • Authors
    Sérgio R. R. de Queiroz
    Nicholas S. Vonortas
    May 9, 2025
    This paper aims to demonstrate how certain transformations in the international economy since the 1980s¾notably the globalization of firms and industries¾combined with a set of domestic challenges, disrupted the path of industrial and technological development that Brazil had pursued since the 1930s. In essence, growth strategies based on the scale of the domestic market ceased to be effective. The innovation and economic challenges the country now faces cannot be addressed without ...
  • Authors
    Sampawende J. Tapsoba
    March 24, 2025
    The return of President Donald Trump could significantly impact macroeconomic policy in Africa. The effects may vary across the continent. Nations that remain neutral towards U.S. influence are likely to benefit, while those aligned with the U.S.'s rivals or lacking immediate economic advantages may be deprioritized in U.S. foreign policy. In this article, we examine the channels through which U.S. policies and the change in political discourse could affect macroeconomic policies in ...
  • Authors
    Under the supervision of
    July 12, 2024
    The 2024 Annual Report on the African Economy is dedicated to monetary and financial issues on the Continent. There are three reasons for this choice. African economies are exposed to macro-financial instabilities partly generated by global monetary and financial turbulence. The Continent’s currencies and financial systems are engaged in very different dynamics, where routine methods and daring, if not risky, practices coexist. The question of the architecture of the internationa ...
  • February 8, 2024
    Depuis 2016, on assiste à une dynamique de création de fonds souverains africains. En 2023, on recense 21 pays et 24 fonds souverains. Sur la seule période 2016-23, celle de la deuxième vague, huit pays vont se doter d’un premier fonds souverain, et d’un deuxième, dans le cas du Maroc, en 2022. Cette étude rappelle tout d’abord l’historique d’une création qui commence, dès 1994, au Botswana, avec le Pula Fund, précisant pour chacun des 24 fonds leur date de création, leur ...
  • Authors
    January 12, 2024
    A 2023 United Nations progress report (UN, 2023) showed that, of the 169 targets that make up the Sustainable Development Goals (SDGs), only 15% are on track, and progress on many has either stalled or regressed. The Water-Energy-Food nexus approach has highlighted the utmost importance of understanding the interconnections between systems in order to accelerate the achievement of the SDGs. In this policy brief, we use the lessons learned from the water sector through a case study f ...
  • Authors
    Elhoussaine Wahyana
    January 12, 2024
    The debate on global value chains (GVCs) has emphasized countries’ contributions to value-added creation. From an intercountry perspective, a new body of research is addingto this debate by studying how subnational regions contribute to the indicators in specific countries. Proper assessment of economic contributions is essential for designing incentive policies. This paper analyzes the role played by the main trading partners of Moroccan regi ...