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International Monetary Fund Plans to Discuss $650 Billion Reserves

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EDITOR NOTE: If Special Drawing Rights were comparable to a loaded gun aimed at a moving target, then the International Monetary Fund would be a slow shooter with poor aim; the kind that second-guesses its approach to pulling the trigger. So, the IMF is talking about issuing $650 billion in SDR reserves to help poorer economies recover from the pandemic. They were talking about this months ago and failed to deliver (as we reported, China stepped in to cover the slack). Nevertheless, the SDR is a powerful weapon, no matter how inefficient or inept its wielder. And though SDRs face stiff competition from digital fiat, the arena is far from the realm of monetary value, as the ultimate goal is acquiring economic control in an artificial monetary environment. The space of real value is much quieter and secure. It can be found in any private depository holding physical gold and silver.

The International Monetary Fund is set to discuss a proposal to create a record $650 billion of new reserves for its members on Friday, bringing the plan to increase resources for nations struggling with the pandemic’s economic and health costs one step closer to approval.

The executive board -- composed of 24 individuals from IMF member countries and Managing Director Kristalina Georgieva -- typically meets several times a week and will vet the specific details of the proposal. The idea isn’t expected to prove controversial within the board, which in March gave broad support to draft it, according to two people familiar with its discussions, who asked not to be identified because they’re private.

Reserves Infusion

IMF members are set to receive $650 billion in special drawing rights

The board will likely consider the proposal on a so-called lapse-of-time basis, meaning that if there are no objections or requests from members for further meetings or formal discussions over a period of days, it will be considered approved and will advance for final approval to the board of governors -- normally the finance minister or central bank head of the 190 IMF member countries.

Logistically, that step is likely to take weeks. Georgieva has said that she hopes to have the process for the reserves, known as special drawing rights, or SDRs, completed by mid-August.

The IMF is preparing to give its member countries the biggest resource injection in its history to boost global liquidity and help emerging and low-income nations deal with mounting debt and the fallout from the Covid-19 pandemic.

The IMF also is looking for ways to redirect SDRs from richer nations that don’t need them to more vulnerable ones that do. That already can be done via donations to the fund’s Poverty Reduction and Growth Trust, which gives interest-free loans, but those borrowers are limited to low-income countries.

To broaden the group of nations that can benefit from redirected SDRs, the IMF is working on a trust for vulnerable low-middle-income countries and small island economies. Georgieva says she hopes plans for the so-called Resilience and Stability Trust will be finalized by year-end.

The Group of Seven large advanced economies earlier this month signaled its support behind efforts to reallocate $100 billion of the new reserves. France has committed to reallocating part of its SDRs to Africa, which is earmarked to initially receive $33 billion of the $650 billion. French President Emmanuel Macron in May asked other rich countries to also reallocate their expected new reserves to boost the amount going to Africa to $100 billion. China supports the call.

Finance ministries across poor and developing nations have been closely following the process for creating the reserves, which many of them badly need after the impact of the pandemic. The initial SDR allocation would fully restore the reserves adequacy of Zambia, Jordan, El Salvador, Benin and Togo -- five of the 44 low-income countries whose debt is rated B+ or below, S&P Global Ratings said in a research report on Tuesday.

If high-income nations redirect 42% of their share of the SDRs, it would restore reserves adequacy of all 44 countries, S&P said.

Original post from Bloomberg

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