Working Paper
CEPR and Latindadd collaborated on the development of this working paper.
The Fourth International Conference on Financing for Development (FfD) in Seville resulted in the adoption of the “Compromiso de Sevilla,” a consensus-based outcome document that reaffirms the need for a renewed global framework for development financing. Among other things, the Compromiso encourages the International Monetary Fund (IMF) to explore strengthening its role in the “ex-ante global financial safety net, especially for developing countries.” The document calls on the IMF to design a Special Drawing Rights (SDRs) “playbook that provides operational guidance and strengthens the role of special drawing rights during crises and shocks.”
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Conclusions
The research demonstrates that emerging and developing countries have consistently been the primary driver of reform regarding Special Drawing Rights. Organizations like Latindadd and civil society groups, as well as governments, have consistently pushed for new issuances and structural reforms, highlighting the critical role SDRs can play in addressing multiple crises, from climate change to debt burdens. This sustained ambition from emerging and developing countries and their advocates lays the foundation for a more equitable and effective international financial system.
While the developing world has articulated the need and demonstrated the ambition, the path forward requires the cooperation and votes of the rest, especially the US. This is not a one-way street of foreign aid; it is a matter of enlightened self-interest for advanced economies. As the above analysis has shown, providing liquidity and stability to emerging and developing countries through SDRs directly benefits advanced economies by boosting global demand for their exports and supporting domestic jobs.
A strategic SDR playbook must be understood as an opportunity to unleash the full potential of the SDR system as a powerful instrument for addressing different types of crises. First, SDRs provide critical liquidity to emerging and developing countries, allowing them to finance imports and stabilize their economies in the face of trade shocks. Second, this stabilization has a direct positive impact on countries with large trade deficits, such as the US, by creating new demand for their goods and services and supporting export-related jobs. The recommendation for the US Treasury Department to support a new SDR issuance is therefore a sound economic policy that serves both domestic and international interests.
A central policy recommendation for the SDR playbook is the establishment of a preapproved, contingent liquidity mechanism. Such a mechanism for SDR allocations would remove the political and bureaucratic obstacles that have historically delayed action, ensuring that a global safety net can be deployed immediately in response to a crisis. This would transform SDRs from a reactive tool to a truly proactive one, capable of preventing crises rather than merely responding to them.
Finally, for an SDR playbook to be truly effective, trapped SDRs must be set free, even in the current framework. Countries have no reason to continue replicating the message that SDRs are a form of debt or that countries cannot deposit them outside of the IMF. The accounting reforms or interpretations are an imperative for unlocking the potential of already existing SDRs. The heated debate over accounting identities highlights the political nature of seemingly innocuous technical bodies like the BOPCOM. The final recommendation is for a more democratic BOPCOM that includes a wider range of voices from academia, civil society, and emerging and developing country institutions like the G-24. This reform is essential to ensuring that the technical rules of the system support, rather than hinder, the effective use of SDRs for the benefit of all countries.
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