RTTNews - Monday, the executive board of the International Monetary Fund approved the allocation of Special Drawing Rights or SDRs, the lender's unit of account, worth $250 billion to its 186 members.
An SDR allocation is a low cost way of boosting members' international reserves, allowing members to reduce their reliance on more expensive domestic or external debt for building reserves.
The allocation is part of the $1.1 trillion plan agreed at the G-20 summit in London in April to tackle the global financial and economic crisis by restoring credit, growth and jobs in the world economy.
A statement from the IMF said $100 billion out of the new allocation would go to emerging markets and developing countries. Out of this, low-income countries would receive $18 billion.
The proposal will be placed before the IMF's Board of Governors for final approval, the statment said. The proposal needs to win approval with 85% majority in a voting set to close on August 7. If approved, the SDR allocation will be effective from August 28.
The SDR allocation is a key part of the Fund's response to the global crisis, offering significant support to its members in these difficult times, IMF Managing Director Dominique Strauss-Kahn said.
The IMF created the SDR, an international reserve asset, in 1969 to supplement the existing official reserves of member countries. Member countries' SDR holdings are in proportion to their IMF quotas. The value of the SDR is determined based on a basket of key international currencies. The SDR has only limited use as a reserve asset today, and its main function is to serve as the unit of account of the IMF.
In the past, IMF had made SDR allocations in two occasions totaling $33 billion or SDR equivalent 21.4 billion. The first allocation of SDR 9.3 billion in yearly installments was made in 1970-72 and the second allocation of SDR 12.1 billion in 1979-81.
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