A distribution of Special Drawing Rights (SDRs) the size of the 2021 issue is expected to create about as many jobs in a year as the Inflation Reduction Act (IRA).
In August 2021, the International Monetary Fund issued $209 billion to developing countries in the form of Special Drawing Rights (the IMF’s reserve asset). SDRs are like cash because recipient governments can convert them into hard currency. They therefore constitute a very effective tool, and the IMF can and must make greater use of them.
If the 2021 show has helped billions of people around the world, hundreds of thousands of Americans have also benefited – and they will benefit again. U.S. exports of goods and services to developing countries total about $1 trillion, and if those countries receive an infusion of reserves, they will import even more.
This effect can be very significant. An SDR distribution the size of the 2021 issue is expected to create about as many U.S. jobs in a year as the $740 billion Inflation Reduction Act (IRA) did in its first year. year of application. We conservatively estimate 111,000 to 191,000 new jobs, most of which would be created in export-related sectors, such as manufacturing, transportation and warehousing.
In fact, the total number of jobs created could be much higher, as we also need to consider the role of SDRs – as reserves – in stabilizing developing economies. This effect would be even greater if the global economy slowed, as appears to be the case now. (The global growth rate has declined sharply since the last SDR distribution, from a record 6.6% in 2021 to half that rate today).
Nor is this the only compelling reason to favor a new DTS issue. As many countries face severe budgetary constraints in the wake of the avian flu pandemic, the SDR could help them make the investments needed to mitigate the effects of climate change.
Even putting these considerations aside, it is clear that the world needs a new DTS broadcast. Many countries face debt crises, such that some 3.3 billion people live in countries that spend more on interest payments than on health care, while 2.1 billion people live in countries that spend more on interest payments than on education.
So why hasn’t a new show already happened? It turns out that the US Treasury Department is the main obstacle. According to the IMF’s rules (which were written in 1944), the 190-member organization does not follow the “one country, one vote” principle. The United States has 16.5% of the votes and any decision to authorize a new issuance of SDRs must be approved by 85%. The Treasury Department, which represents the United States at the IMF, therefore has veto power and, as long as it involves other high-income countries, it can pass almost any measure it wants.
So what is needed for a new DTS broadcast is America’s support. Although the Treasury Department is required to notify Congress 90 days in advance, an issuance of the 2021 order would not require a congressional vote. Mr. Biden’s outgoing administration could begin the process today, and the incoming Donald Trump administration would only have to approve the decision.
-Would Trump agree with this? It’s certainly possible, given that a new show would create jobs in the United States. If this happens quickly, without slowing down in Congress, it could even be distributed as early as April.
If American unions have already expressed their support for a new issue, Wall Street also has a great interest in this matter. U.S. financial firms hold tens of billions of dollars of sovereign bonds from debt-plagued developing countries, and a fresh injection of cash into those economies could save them from potentially massive losses on their investments. As global economic growth has slowed, the bonds they hold are more at risk than they were three years ago. Additionally, like the 2021 show, a new show would have no cost to the U.S. budget.
Of course, the impact would be greatest on developing countries. Worldwide, 282 million people are at risk of starving, compared to 135 million before the pandemic and 258 million in 2022. The additional reserves created by the new SDRs would make it possible to increase imports of food and medicines, as well as investments in public health equipment and infrastructure which are sorely lacking.
In 2021, the issuance of SDRs, amounting to $209 billion, exceeded the entire official development assistance received by developing countries that year. Issuing SDRs can save hundreds of thousands of lives around the world and, unlike most aid, it comes with no debt and no strings attached. For all these reasons, the Catholic Church and other religious organizations have consistently supported the new SDR allocations.
No economist, including at the U.S. Treasury, has made a plausible argument that a new issue would carry significant risks. The IMF’s own assessment concluded that the latest issuance had “contributed to global financial stability” and that there was “no evidence that the allocation contributed significantly to global inflation.”
The Biden administration should follow the advice of almost all economists who have studied this issue and launch a new issuance of SDRs. In doing so, the IMF would set out on a path to creating hundreds of thousands of jobs in the United States and saving countless lives around the world.
Project Syndicate, 2025.
www.project-syndicate.org
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