Fruits of the crisis: leveraging the Financial & Economic Crisis of 2008-2009 to secure new resources for development and reform the global reserve system

Fruits of the crisis: leveraging the Financial & Economic Crisis of 2008-2009 to secure new resources for development and reform the global reserve system

Financial Crisis generated significant support: using Special Drawing Rights for public investment to promote developments

This paper reviews the recent developments in Special Drawing Rights (SDRs), an international reserve asset, created by the IMF. It recommends mobilisation of resources for development finance in light of the recent crisis. The paper deems that the crisis has opened up new opportunities to reform the structures of the global monetary system in a way that would eliminate distortions and benefit all countries.

The document underlines these two findings: 

  • SDRs can be an effective tool not only for building reserves, but also for financing development and meeting urgent liquidity needs
  • the discussions around the UN Conference on the Global Financial & Economic Crisis articulated significant support for expanding the scope of SDRs

To exploit this unique moment in recent economic history, the author recommends the following:

  • advocates and governments should build on the support expressed for the expanded scope and use of SDRs to push for greater acceptance of their use with individual countries and with the UN
  • the use of SDRs for public investments should be asserted and defended on an international level
  • greater amounts of SDRs should be provided to developing countries, and the costs of converting them should be reduced or eliminated, particularly for low-income countries
  • to guard against a risk of inflation, a new category of SDRs – temporary or reversible – should be created and should act as a ‘counter-cyclical’ way to meet urgent liquidity needs
  • SDR allocations should be made on the basis of need rather than on the basis of IMF quotas
  • SDRs should be allocated by the IMF regularly in times of financial crisis