Declaring a Hollow Victory on SDRs Would Further Undermine G20 Credibility

In November 2021, the G20 pledged to recycle $100 billion of Special Drawing Rights (SDRs) from advanced economies to more vulnerable countries. While these countries jumped on the moment to offer public promises, they've been slower to deliver on those financial commitments. But it is likely that at the Paris Summit for a New Global Financial Pact on June 22-23, French President Emmanuel Macron will proclaim victory—that $100 billion SDRs have been recycled. Or at least pledged. Or sort of. Whatever he proclaims, it will be premature. Here are a few reasons why the job is not yet done:

  • The accounting of the pledges by the G20 is dodgy. First, pledges are not made public. The ONE Campaign keeps the best accounting of who’s pledged what, and it shows current pledges at $97 billion, but with a big caveat. That sum includes a promise from the United States of $21 billion, which is stalled in Congress. The Biden administration is pushing to free the SDRs from Congressional jail. Still, there's no certainty that the Republicans in the House of Representatives will go along.
  • Pledges to recycle don’t mean vulnerable countries have received the money. The bulk of the recycling will go to two trust funds at the International Monetary Fund (IMF), the Poverty Reduction and Growth Trust (PRGT) and the Resilience and Sustainability Trust (RST). The IMF then onlends the SDRs to vulnerable countries. So far, neither trust has disbursed any recycled SDRS (although the accounting for the PRGT is complicated—see here). Rwanda will likely receive a disbursement from the RST in the next few weeks—about $75 million of SDRs—and Costa Rica and Barbados will follow. But it will be years before vulnerable countries see a full $100 billion of SDRs on their central bank balance sheets. While recycling pledges have strengthed the PRGT, lending will soon be constrained by a lack of “hard money” subsidy resources.
  • A good chunk of the potential recycled SDRs has no place to go yet. The IMF can absorb about $60 billion of the pledged recycling. But where will the other $40 billion go? There are lots of proposals on the table. Still, only some meet the G20’s demand that the recycled SDRs preserve their reserve asset characteristic (explained here). The two most viable proposals are to use SDRs as hybrid capital at the African Development Bank (described here) or for multilateral development banks to issue SDR-denominated bonds (explained here). These proposals are being blocked by recalcitrant central banks in advanced countries that balk at the idea of SDRs being used for non-monetary purposes, even though the two proposals use SDRs so as to meet central bank definitions of reserve assets. The most strident is the European Central Bank, which prevents all countries that use the euro as their currency from recycling SDRs outside the IMF. Political leadership is needed to get SDRs recycled through responsible non-IMF alternatives.
  • Some advanced economies are recycling their SDRs directly rather than through the IMF or multilateral development banks. To repeat, the G20 accounting of what SDRs are to be recycled where needs to be more transparent. But it is reported that Canada is counting loans made through the IMF to Ukraine as part of its recycling. Other countries are alleged to have made similar bilateral arrangements. Bilateral recycling is allowed. But is such recycling within the spirit of the G20 initiative, which was aimed at vulnerable countries recovering from the economic devastation caused by COVID-19? It certainly could fuel resentment of the countries hardest hit by the pandemic—they rightly feel that resources aimed at their needs are being diverted elsewhere. It shouldn’t be a zero-sum game.

So, in Paris, we're likely to hear a self-satisfied proclamation of “job well done” coming from the G20. But G20 members should ask themselves if they've also met the development needs of their vulnerable country partners. To me, the answer is no.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.

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