The world economy is threatened with a “dangerous and permanent divergence,” the US Treasury Secretary has warned G20 officials.
United States Treasury Secretary Janet Yellen on Thursday supported a new allocation of the International Monetary Fund’s own currency, or Special Drawing Rights (SDRs), but said broad parameters were needed to strengthen transparency on how reserves are used and exchanged.
Reversing opposition from the administration of former US President Donald Trump, Yellen told Group of 20 (G20) finance officials in a letter that a new allocation of SDRs could increase liquidity in poor countries, which have been particularly affected by the global coronavirus pandemic.
The head of the US Treasury has not given any specific size for a possible allocation of SDRs, which can be converted into hard currencies by members of the IMF. Italy, which is assuming the G20 presidency this year, and other members of the Rich and Emerging Economies group backed a $ 500 billion allocation, but the United States had remained cautious about their views until now.
Yellen said an SDR allocation and measures to boost low and zero interest rate loans from the World Bank and IMF were needed to help contain the coronavirus pandemic and mitigate its devastating impact, in particular in poor countries with fewer resources.
“Without further international action to support low-income countries, we risk a dangerous and permanent divergence in the global economy,” Yellen said in his letter, which was released a day before his videoconference with other finance officials. of the G20.
“Allocating new Special Drawing Rights to the IMF could improve the liquidity of low-income countries to facilitate their much-needed health and economic recovery efforts,” she said. “To make this tool effective, the G20 must work with a broad coalition of countries on a set of common parameters for greater transparency and accountability in how SDRs are traded and used.”
IMF spokesman Gerry Rice welcomed Yellen’s statement as “a very useful letter on a very important issue.” The IMF’s previous SDR allocation during the global financial crisis had “served the world very well” and could do so again in the current crisis, he said.
Civil society groups, religious leaders and some Democratic lawmakers in the U.S. Congress have called for a much larger allocation valued at $ 3 trillion, but sources familiar with the matter said they viewed such a large move as small. likely at the moment.
The IMF last issued $ 250 billion in new foreign exchange reserves in 2009, as economies around the world battled the global financial crisis.