The IMF said on Wednesday that its board had decided to let multilateral development banks (MDBs) to purchase financial instruments that would further expand their balance sheets using member nations’ IMF-issued international reserve assets.
In a statement, the International Monetary Fund said that the action would enable member nations to permit MDBs to use their Special Drawing Rights (SDRs), which are assets established as international reserves by the Fund, to acquire so-called “hybrid capital” instruments.
By combining loan and equity in new ways, these financial products would enable MDBs to extend the amount of money they may lend for development projects.
The board’s decision, which it said was not unanimous, adds another use for SDRs, which can already be used by the IMF’s 190 members to do things like settling obligations and loans.
The African Development Bank (AfDB) and the Inter-American Development Bank (IDB) welcomed the IMF’s decision, which they said could leverage existing SDRs up to four times their current level, helping address global challenges like climate and food security.
“The international community now has at its disposal an innovative approach through which development financing can be mobilized with a multiplier effect and at no cost to taxpayers,” African Development Bank President Akinwumi Adesina said.
According to the IMF, there would be a cumulative cap of 15 billion SDRs, or around $19.9 billion, on the new usage of SDRs.
The IDB and AfDB predict that if that money is leveraged four times, it may generate over $80 billion in extra lending capacity.
The IMF said the SDR cap of 15 billion “aims to mitigate potential liquidity risks in the SDR market.”
It added that it would conduct a review of the new use of SDRs once cumulative hybrid capital contributions surpass SDR 10 billion (roughly $13.2 billion), or in two years’ time, “whichever comes first.”
