International Monetary Fund: Special Drawing Rights Allocations, 2009

On August 7, 2009, the IMF board of governors approved a general allocation of SDR 161.2 billion (USD 250 billion), to “provide liquidity to the global economic system by supplementing Funds’ member countries’ foreign exchange reserves.” (IMF 2009d). The allocations were part of a larger effort, spearheaded by the G-20, “to tackle the global financial and economic crisis by restoring credit, growth and jobs in the world economy” (IMF 2009b; IMF 2019).

Any allocation of SDRs must take into consideration the principles included in the IMF’s Articles of Agreements:

SDRs are allocated unconditionally, and members can use them to obtain freely usable currencies to meet a balance of payments need without undertaking economic policy measures or repayment obligations. During the general 2009 allocation, all then-current 186 IMF members received an allocation in proportion to their quotas in the IMF, based broadly on the size of each country’s economy (IMF 2009d).

The press release announcing the general allocation noted that USD 100 billion of the allocation would go to emerging markets and developing countries, with low-income countries receiving over USD 18 billion. For these countries, the release stated, SDRs would provide enhanced options for reserve management and function as “a low-cost liquidity buffer and reduce the need for excessive self-insurance” (IMF 2009b).

A separate one-time special allocation of SDR 21.5 billion (USD 33 billion) was also authorized pursuant to the recently approved fourth amendment to the IMF Articles of Agreement. This allocation, implemented on September 9, 2009, was intended to “make the allocation of SDRs more equitable and correct for the fact that countries that had joined the Fund after 1981—more than one fifth of the current IMF membership—had never received an SDR allocation” (IMF 2009d).

The SDR allocation was supplemented by other actions of the IMF to assist member countries in responding to the crisis. These included:

• Assisting member countries, particularly low-income countries, in dealing with the effects of the food and fuel price shocks;
• Activating the IMF emergency financing mechanism to assist seven countries with expedited financing;
• Loans amounting to SDR 65.8 billion to 15 member countries through its nonconcessional facilities;
• Loans or augmentations to existing arrangements for 26 countries totaling SDR 1.1 billion through its concessional lending facilities;
• A major overhaul of the Fund’s lending toolkit to make sure the Fund had adequate resources to meet the crisis (IMF 2009f).

The IMF also introduced in March 2009 a new Flexible Credit Line (FCL) to member countries who met certain criteria: The purpose of the FCL was to provide short-term lending to help countries address crises  in a more timely manner, ease lending and address countries’ balance of payments financing needs; however, as of the writing of this case, usage has been minimal, with Colombia becoming the first country to draw from the facility in 2020 for USD 5.4 billion (IMF 2011a; IMF 2020b).

For all IMF lending programs, the IMF does not create new SDRs as it does in an SDR allocation. Rather, in lending programs, the IMF provides existing SDRs or reserve currencies to the borrowing country by drawing on the reserve asset subscriptions of other member countries or by calling on countries that are considered financially strong to exchange their currencies for reserve assets (IMF 2001).

The SDR allocations were proposed by the G-20 countries as part of a USD 1.1 trillion plan agreed to at their London Summit in April 2009 to address the impacts of the GFC. Other elements of the plan included:

• USD 100 billion of lending by the World Bank and other multilateral development banks to include low-income countries;
• An immediate USD 250 billion increase, through contributions, in the resources available under the IMF lending programs, with another USD 250 billion possible later;
• An additional USD 6 billion from IMF gold sales for concessional finance for the poorest countries. The G-20’s plan was meant to, among other things, “restore credit, growth and jobs in the world economy . . . repair the financial system to restore lending . . . [and] promote global trade and investment and reject protectionism.” (G-20 2009, 1; IMF 2019).

The central banks of G-20 countries also individually undertook measures to address the crisis: lowering policy rates, expanding liquidity, and using a range of conventional and unconventional tools. Additionally, in 2010–12, the so-called “Troika”—including the IMF, European Commission, and European Central Bank—used euros and SDRs to compose large financial assistance packages for Greece, Ireland, and Portugal. Those packages included SDR commitments from the IMF totaling USD 62 billion for Greece, USD 29 billion for Ireland, and USD 34 billion for Portugal, as of 2012 (Nelson et al. 2012).

Article XVIII of the IMF Articles of Agreements provides for the allocation and cancellation of SDRs in accordance with its stated principles and procedures. The 2009 general allocation of 161.2 billion SDRs ($250 billion) required approval of 85% of the voting power of the Fund’s board of governors, which consists of one governor and one alternate appointed by each member country, which at the time numbered 186. General allocations (allocations based on each country’s IMF quota) are typically considered in five-year cycles, with the option for early review (IMF 2009c; IMF 2020a). For more information regarding the procedure for off-cycle allocations, see also Key Design Decision No. 4, Governance.

The proposal for the 2009 general allocation was raised at the summit of G-20 countries in April 2009, after which it was endorsed by the IMF executive board. The proposal was then considered by the IMF managing director and then submitted to the board of governors. Before recommending an allocation, the IMF managing director determines if an SDR allocation would meet certain broad standards set forth in the IMF’s Articles of Agreement and that there is broad support among the members for the proposal (G-20 2009; IMF 2009b; IMF 2020a).

The special allocation of SDR 21.5 billion required the approval of the fourth amendment to the IMF’s Articles of Agreement. Once adopted, the amendment allowed for a special allocation to grant SDRs only to those members that had joined after the previous two general allocations (42 countries), to raise the ratios of members’ cumulative SDR allocations relative to quota to a common benchmark ratio as described in the amendment (IMF 2021c).

The amendment had originally been proposed in 1997 but required ratification by at least three-fifths of the IMF membership (112 of 189 members) with 85% of the total votes. This voting threshold was achieved on August 9, 2009, after the United States joined 133 other countries in supporting the amendment. The special allocation was implemented on September 9, 2009 (IMF 2009a; IMF 2021c).

Article XVIII of the IMF Articles of Agreements provides that the IMF may allocate SDRs to SDR members during “basic periods” of roughly five years, with allocations and cancelations taking place at yearly intervals (IMF 2020a, 42). The managing director must propose an allocation at least six months before the end of a basic period. The 2009 general allocation was made well in advance of the end of the then-current basic period which was to end in June 2011. The possibility existed that the managing director could have determined to recommend an additional general allocation during this period (IMF 2009g). 

The IMF managing director generally proposes SDR allocations to the IMF’s executive board^FNThe IMF executive board is the senior staff committee that manages the day-to-day work of the Fund. It is composed of 24 positions, represents the entire membership, and is supported by IMF staff (IMF n.d.b). which, if it approves the proposal, submits it to the IMF's board of governors, which approves or rejects the allocation by a vote of 85% of the voting power of the member countries in the SDR Department. The board of governors supported the 2009 general allocation following a proposal by the G-20 heads of state and the IMF’s International Monetary and Financial Committee (IMFC), a ministerial level advisory committee that advises the board^FNThe size and composition of the IMFC mirrors that of the executive board. It has 24 members who are central bank governors, ministers, or others of comparable rank, and who are usually drawn from the governors of member countries (IMF n.d.d). (IMF 2021c; IMF 2021d).

The IMF may change terms with respect to the remainder of a basic period, change the length of a basic period, or start a new basic period “if at any time the Fund finds it desirable to do so because of unexpected major developments” (IMF 2020a, 43). The board of governors can propose a cancellation of SDRs following the same process for proposing and allocation, however, it has not exercised this authority as of the writing of this case (IMF 2016).

The IMF reports changes in SDR holdings by transaction type on an aggregate basis monthly on the IMF Finance webpage. The IMF periodic financial operations reports provide information about the SDR trading market and participants’ SDR allocations and holdings to the public. These reports are available in the Fund’s annual and quarterly financial reports (IMF 2021c).

All 186 IMF member nations were eligible for the general allocation in proportion to their IMF quota since all were also participants in the SDR Department. On the announced settlement day, the department distributed the general allocation by crediting the members’ accounts at the Fund. The allotment was in proportion to each member’s existing quota in the Fund^FNThe IMF cannot allocate SDRs to itself or to prescribed holders. The Articles of Agreement also allow for cancellation of SDRs, although, as of the writing of this case, there have been no cancellations (IMF 2016). (IMF 2009e).

The special allocation was distributed only to those members that had joined the Fund after 1981. On the announced settlement day, eligible members received their distribution except for participants with overdue obligations to the IMF: For these countries, the allocated SDRs were placed in an escrow account by the IMF, to be released upon settlement of all overdue obligations. Standard allocations are generally distributed over several years. However, despite their size, the 2009 general and special allocations were implemented in total on individual dates, rather than over the span of several years as had been the case with the two previous allocations. We found no stated explanation for this change in practice, but it is likely that the existence of the GFC may have influenced this decision as it was part of an overall effort “to tackle the global financial and economic crisis by restoring credit, growth and jobs in the world economy" (IMF 2009b; IMF 2016; IMF 2021c).^FNOf note, the 2021 general allocation, which was approved in response to the COVID-19 pandemic and was much larger than the 2009 allocations, was also distributed in one day (IMF 2021a).

The SDR Department manages operations and transactions involving SDRs through the special drawing account in the IMF and facilitates transactions involving SDRs through voluntary trading agreements (VTA) (see Key Design Decision No. 9, Process for Utilizing the SDRs). When the IMF allocates SDRs, members receive unconditional liquidity represented by an interest-bearing reserve asset (SDR holding) and a corresponding long-term liability to the SDR Department (SDR allocation). The SDR Department maintains records of the SDR allocations as well as any changes in holdings by members. The SDR Department pays interest to each member on their SDR holdings at the SDR interest rate (SDRi) which is determined weekly on each Friday based on a weighted average of representative interest rates on three-month debt in the money markets of the five SDR basket currencies (i.e., the US dollar, the Japanese yen, the euro, the British pound sterling, and the Chinese renminbi^FNThe IMF added the renminbi to the SDR basket in 2015.) (IMF 2016; IMF 2021c).

The SDR department also facilitates transactions involving SDRs. Members can:

Following its London Summit, the G-20 countries issued a statement on April 2, 2009, acknowledging the seriousness and widespread nature of the GFC and committing to enhancing the IMF’s ability to address the problems. The statement outlined various facilities that the group proposed to fight the crisis, including the general and special SDR allocations. (G-20 2009).

The IMF’s executive board contemporaneously communicated a favorable position regarding the G-20 proposal for the allocations and characterized the SDRs as “a key part of the Fund’s response to the global crisis, offering significant support to its members in these difficult times.” (IMF 2009b). During and after the approval process, the IMF’s communications highlighted two points:

First, that the proposed general allocation would particularly impact lower income nations: Approximately USD 100 billion of the general allocation would go to emerging markets and developing countries, of which low-income countries would receive over USD 18 billion:

Second, the IMF emphasized that the allocations were “a key example of a cooperative multilateral response to the global crisis, offering significant support to the Fund’s members in this challenging period” (IMF 2009a). The IMF also recognized that the general allocation was an unusual step, calling SDRs, “a very seldom-used tool . . . in the financial crisis-fighting arsenal” (IMF 2009a).

As of the end of July 2009, the Fund reported that significant progress had been made towards operationalizing the G-20’s promised goal of providing an additional USD 250 billion in lending resources (IMF 2009f; IMF 2019).

In terms of transparency, the IMF maintains an account of SDR balances and transactions for each member and reports in its quarterly and annual financial reports changes in individual members’ SDR holdings. As of the writing of this case, this information was available on a monthly basis on the IMF’s webpage. In 2021, the Fund committed to expanding transparency with respect to SDRs by providing additional details regarding the functioning of the voluntary SDR trading market. In October 2022, the IMF published the Annual Update on SDR Trading Operations, a paper previously prepared for its board but not disclosed publicly. This report provides additional analysis on the use of VTAs and trends in SDR exchanges, such as experience with sales after the SDR allocation, and aggregate VTA trading information including trading ranges. The Fund also committed to publishing, two years after the 2021 allocation, an ex-post report on the use of SDRs, which discussed both 2009 allocations (IMF 2021c; IMF 2022, 7). 

IMF members that were participants in the SDR Department (which at the time was all 186 members) were eligible for the general allocation; they did not have to meet any specific requirements to receive their proportional share of the allocation. Member countries ranged from the G-20 nations to small low-income and emerging market countries. Members could use their allocated SDRs immediately once the allocation was distributed. Uses included balance of payments needs, adjusting their reserves, or obtaining currency from other members (IMF 2009d; IMF 2016).

Member countries eligible for the special SDR allocation were those that had joined the IMF after 1981 and therefore had not participated in either of the two SDR allocations in the 1970s. This was approximately one fifth of the 186 member countries and included many from Central and Eastern Europe and Central Asia. The fourth amendment that made the special allocation possible was intended to increase the equity of SDR disbursal by raising the SDR allocation for these members to a preapproved benchmark of 29.32% of quota. The fourth amendment was adopted by the IMF executive board in 1997 and required approval by three-fifths of the membership with 85% of the total voting power, to become effective. The affirmative vote of the United States on August 9, 2009, pushed the amendment over the threshold (Bretton Woods 2009; IMF 1997; IMF 2009d; IMF 2009e).

Differing from the general allocation, members eligible to participate in the special allocation that had overdue obligations to the IMF had their allocation placed in an escrow account in the SDR Department. The IMF would release such funds to the member once it settled all overdue obligations (IMF 2016).

“Prescribed holders,” entities eligible to acquire, hold, and use SDRs in transactions with other prescribed holders and members, did not participate in allocations and could not request an exchange of SDRs by the designated mechanism (IMF 2023a). These entities are a limited group of official organizations which have been approved by the IMF.^FNThe Fund is authorized to prescribe as holders of SDRs (i) non-members, (ii) members that are not participants in the SDR Department, (iii) institutions that perform functions of a central bank for one or more IMF member countries, and (iv) other official entities (IMF 2023a). As of August 2009, there were fifteen prescribed holders, including the Bank for International Settlements, the European Central Bank, and other regional monetary institutions and development banks and funds. As of February 2023, there were twenty such prescribed holders. Holdings of SDRs and transactions in SDRs by prescribed holders are also administered by the SDR Department. Although there is no general provision for prescribed holders to initiate transactions in SDRs with the department, they generally participate in VTAs or bilateral arrangements (IMF 2009g; IMF 2016; IMF 2021e; IMF 2023a).

 The 2009 general allocation was for SDR 161.3 billion (USD 250 billion), which originated with a proposal by US economist Ted Truman and was taken up by the G-20 at its April Summit. This amount was the largest amount that US Secretary of the Treasury Timothy Geithner could approve without congressional action and dwarfed the two previous multi-year general allocations. The 1970–72 allocation had totaled SDR 9.3 billion, and the 1979–1981 allocation had totaled SDR 12.1 billion. The G-20 statement said the general allocation was part of an aggressive package of commitments designed to treble the IMF’s resources to USD 750 billion and, along with other commitments, constituted an additional “USD 1.1 trillion program of support to restore credit, growth and jobs in the world economy” (Bretton Woods 2009; G-20 2009, 1; IMF 2021c; Truman 2019). 

The 2009 general allocation was distributed to all IMF members in proportion to the member country’s share (quota) in the IMF, broadly based on the relative size of their economies. Each country would receive SDRs equal to approximately 74% of its quota, and countries with higher quotas would generally receive more SDRs than smaller or emerging market countries. However, in its announcements regarding the 2009 allocations, the IMF noted that USD 100 billion would go to developing and emerging market economies and USD 18 billion to low-income countries representing for this group a 20% increase on average in their international reserves (IMF 2009c).

The special allocation was SDR 21.5 billion (USD 33 billion). It was intended to increase the equitable participation in SDRs by all members by raising the SDR allocation for those members that had joined the fund after 1981 and thus had not participated in earlier allocations. The special allocation was distributed to eligible members so as to raise their SDR allocation to a preapproved benchmark of 29.32% of quota (IMF 1997; IMF 2009d).

The SDRs have no fixed maturity and member countries are under no obligation to maintain any particular level of SDRs, although they will be charged interest if their account is below their net accumulated allocation of SDRs (IMF 2016). For more information on SDR interest, see Key Design Decision No. 9, Rates and Fees.

As soon as allocated, members could use their SDRs in several ways—to settle obligations with the IMF, to address a balance of payments issue, or maintain as reserves. They could also exchange SDRs for hard currency: When members wished to exchange SDRs, they typically made a request to the SDR Department which matched each seller with a counterparty through a VTA managed by the Department. Under these arrangements, members and prescribed holders volunteer to buy or sell SDRs. When an SDR is exchanged for a member’s currency, the SDR account is reduced and the reserve account is increased (IMF 2016).

The SDR market has evolved into an active market with several standing bilateral orders through VTAs, which absorb most of the activity. Should there be insufficient liquidity and a lack of VTAs for the desired exchange, the IMF may invoke its designation mechanism to require that a member with a strong balance of payments and reserves position purchase SDRs from a member with weak positions. Due to the active internal SDR market, however, the IMF has never had to invoke its designation mechanism to compel a member to buy SDRs from a member country wanting to sell (Gallagher, Ocampo, and Volz 2020; IMF 2016). 

SDRs do not have expiration dates nor a set time frame in which they must be used. Because they are potential claims and exchanged on a voluntary market, there is no predetermined fixed maturity date (IMF 2024).

As soon as allocated, SDRs count towards members’ reserves and can be used in several ways: to settle obligations with the IMF, to address a balance of payments issue, or to enhance their reserves. Members can also choose to exchange part or all of their SDR allocations to other members for hard currency through VTAs, provided they find a willing counterparty for the transaction. For credit constrained, low-income, or indebted countries, swapping SDRs for hard currencies enabled them to meet various balance of payment needs with the IMF. Other members agreed to buy more SDRs to shift their reserves to this asset (IMF 2009d).

In 2016, the IMF reported that in the first four months following the general allocation in August 2009 and the special allocation in September 2009, there was an increase in SDR sales; 16 countries sold SDR 2.9 billion. After this period, SDR sales continued with most countries engaging in multiple SDR sales transactions. A few countries, most of which were low-income, sold more than 80% of their 2009 SDR allocations (IMF 2016).

The SDR Department maintains records of the SDR allocations and any changes in holdings by members. If the member’s SDR holdings rise above its net cumulative allocation, the SDR Department pays to the member interest on SDR holdings. If the member holds fewer SDRs than its net cumulative allocation, it pays interest on the shortfall (IMF 2016).

Interest is at the SDRi, which is determined each Friday and is based on a weighted average of representative interest rates on three-month debt in the money markets of the five SDR basket currencies (i.e., the US dollar, Japanese yen, euro, and pound sterling, and the Chinese renminbi). The calculation takes into consideration the currency amounts in the valuation basket as weights, except if the weighted average falls below the floor of the SDR interest rate of 0.05% (5 basis points), in which case the floor rate will apply (IMF 2016). 

SDRs may not be held by private or commercial entities so they may not be used for trade or commercial transactions (IMF 2016).

Because SDR-to-hard currency exchanges are done on a voluntary basis, some members may have trouble attracting willing counterparties due to external reasons such as US sanctions. IMF members that are subject to US sanctions may receive an SDR allocation, but be unable to find a willing counterparty should they wish to exchange their SDRs for hard currencies due to the stigma associated with sanctions and the threat of secondary sanctions from the US.^FNIn the case of Yemen, the stigma associated with voluntary SDR exchange transactions prevented countries from exchanging SDRs with Yemen, even though it is an internationally recognized and nonsanctioned government (Cashman, Arauz, and Merling 2022). In the year following the 2021 general allocation, eight governments^FNThese nations were: Afghanistan, Belarus, Iran, Myanmar, Russia, Sudan, Syria, and Venezuela (Cashman, Arauz, and Merling 2022). were unable to exchange their SDRs for hard currency as a result of either US sanctions or a lack of voluntary counterparties (Cashman, Arauz, and Merling 2022).

Furthermore, in cases of regime change, the IMF managing director may suspend recognition of a country’s government. In such cases, the executive board’s voting threshold for restoring recognition often requires support from the US and European countries that may have imposed sanctions upon such nations (Cashman, Arauz, and Merling 2022).

The asset side of the Fund’s balance sheet shows the position of members (debtors) that have exchanged some of their SDRs for freely usable currency and whose holdings of SDRs are less than their net cumulative allocations. The accrued interest receivable from such members mirrors the accrued interest payable to members whose balances exceed their net accumulated allocations (creditors) on the liability side. SDRs thus do not present a risk to the IMF’s balance sheet so no actions are needed to protect its balance sheet (IMF 2016).

Our research did not uncover specific alternative options that the IMF considered instead of issuing SDRs. However, both the 2009 general and special SDR allocations were only two of numerous policies implemented by the G-20 and IMF to address the member countries’ needs for reserve currency and liquidity during the GFC (See Key Design Decision No. 2, Part of a Package). In addition to the lending programs to developing countries, the IMF committed USD 250 billion to support trade finance as well as USD 150 billion for discretionary IMF gold sales to help the poorest countries (G-20 2009).

Concerns about the limitations in benefits of SDR allocations to the poorest countries was discussed in a 2011 paper prepared by IMF staff, which noted that because SDRs are allocated in step with a member’s quota, advanced economy nations tend to receive a far greater proportion of such allocations. The paper proposes that alternative methods of allocating SDRs would result in more being allocated to the neediest. Proposals include: allocation not connected to quotas, requiring members to hold a specific amount of SDRs over a specified time period, holding a portion of allocations in escrow to be released at the time of a systemic shock, targeting SDR allocations to those countries considered to have low levels of precautionary reserves compared to broadly accepted reserve adequacy benchmarks, or to countries affected by a systemic shock, or making SDR allocations conditional on adhering to certain policies aimed at supporting reserve maintenance against certain benchmarks. Notwithstanding these proposals, the Fund allocated the 2021 COVID general allocation of SDRs according to the traditional method based on members’ quotas (IMF 2011b; IMF 2021a). For more information on the 2021 SDRs allocation, see Arnold (2024).

As a reserve asset, SDRs have no fixed maturity and are not timebound as to when they must be used. SDRs may be cancelled by the IMF, however, to date, the fund has never exercised this option. Should SDRs be cancelled, members with negative SDR balances (cumulative SDR allocations greater than holdings) would need to repay this balance “promptly” (IMF 2023b, 27).