The IMF announced on Wednesday that its board voted to allow member states’ international reserves to be used by multilateral development banks (MDBs) to acquire financial instruments that would further expand their balance sheets.
The International Monetary Fund said in a statement that the move would allow member states to let their Special Drawing Rights (SDRs) – international reserves created by the Fund – be used by MDBs to obtain so-called “hybrid capital” instruments .
These new financial instruments combine both debt and equity in a way that will allow MDBs to expand the amount they can lend for development projects.
The board’s decision, which it said was not unanimous, adds another use for SDRs, which can already be used by the IMF’s 190 members to do things like settle liabilities and loans.
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The African Development Bank (AfDB) and the Inter-American Development Bank (IDB) welcomed the IMF’s decision, which they said could leverage existing SDRs up to four times their current level, helping to address global challenges such as climate and food security.
“The international community now has at its disposal an innovative approach through which development finance can be mobilized with a multiplier effect and at no cost to taxpayers,” said African Development Bank President Akinwumi Adesina.
The IMF said the new use of SDRs is subject to a cumulative cap of 15 billion SDRs (about $19.9 billion).
If that money is leveraged four times, as the IDB and AfDB suggest, it could unlock nearly $80 billion in additional lending capacity.
The IMF said the SDR cap of 15 billion “aims to mitigate potential liquidity risks in the SDR market.”
It added that it would conduct a review of the new use of SDRs when cumulative hybrid capital contributions exceed SDR 10 billion (about $13.2 billion), or in two years, “whichever comes first.”
Source: AFP