Peterson Institute for International Economics | Wed, Jan 27, 2021
by Edwin M. Truman and Maurice Obstfeld
The global economic meltdown caused by the COVID-19 pandemic has plunged many countries into potential external financial crises through no fault of their own. The Trump administration prevented the International Monetary Fund (IMF) from deploying one of its key tools—called special drawing rights (SDR)—to help countries in distress. Fortunately, Treasury Secretary Janet Yellen can act quickly to remove this blockade.
Such a move would extend the Biden administration's commitment to revive US multilateral cooperation by rejoining the Paris climate accord and the World Health Organization. The United States can reverse course on global financial cooperation as well by supporting an allocation of $650 billion in SDR. This action would help countries fight the pandemic and aid global economic recovery, to the benefit of the United States as well as the rest of the world.
The United States must approve any SDR allocation because an 85 percent weighted majority vote of the IMF executive board is required, and the US voting share is 16.51 percent of the total. Because of its voting power, the United States can and has blocked proposals to allocate SDR for almost a year. Under US law, the Treasury secretary can endorse an SDR allocation without the approval of Congress so long as the amount of the SDR allocation the United States would receive does not exceed the US quota in the IMF ($119.7 billion) and the secretary notifies Congress 90 days in advance. The Treasury secretary thus could consent to an SDR allocation of, say, $650 billion (of which the United States would receive $113.4 billion) without seeking explicit congressional approval. This aspect has the major benefit that the SDR allocation can be authorized quickly—if only the United States would allow the IMF to act. If Secretary Yellen were to notify Congress on February 1 that she intended to vote for an SDR allocation at the IMF, the allocation could be on the books by mid-May.