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Expansion of reserves proposed -- IMF

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Expansion of reserves proposed -- IMF

  • The International Monetary Fund's executive board discussed a proposed $650 billion expansion of its emergency reserves or Special Drawing Rights, marking the next step in a process expected to be completed in August.
  • It is aimed at helping the most vulnerable members of the global lender weather the COVID-19 pandemic and its economic fallout.

Special Drawing Rights (SDR):

  • The SDR is an international reserve asset, created by the IMF in 1969.
  • It is used to supplement its member countries’ official reserves.
  • The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members.
  • SDRs can be exchanged for these currencies.
  • The value of the SDR is based on a basket of five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.

Currencies included in the SDR basket have to meet two criteria:

  1. Export criterion
  2. Freely usable criterion
  • Export criterion if its issuer is an IMF member or a monetary union that includes IMF members, and is also one of the top five world exporters.
  • For it to be freely usable, it has to be widely used to make payments for international transactions and widely traded in the principal exchange markets.
  • Quota (the amount contributed to the IMF) of a country is denominated (expressed) in SDRs.

International Monetary Fund (IMF):

  • The formation of the IMF was initiated in 1944 at the Bretton Woods Conference.

  • IMF came into operation on 27th December 1945.

  • Currently, it consists of 189 member countries.

  • It was developed as an initiative to promote international monetary cooperation, enable international trade, achieve financial stability, stimulate high employment, diminish poverty in the world, and sustain economic growth.

  • Headquarter: Washington

  • India is a founder member of the IMF. India’s Union Finance Minister is the Ex Officio Governor on the IMF’s Board of Governors.

  • India is the eighth largest quota holding country at the organization.

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