Can an obscure financial instrument designed in the 1960s help the IMF rescue cash-strapped countries?
the world are seeing their finances savaged by the pandemic. And poor ones, who are also suffering from capital flight, are crying out for cash. The, the world’s crisis lender, is already parcelling out loans. It may yet resort to a weirder weapon: the special drawing right , an arcane financial instrument designed in the 1960s. At present, some 204bns sit on the balance-sheets of finance ministries and central banks around the world. Each can, in theory, be swapped for currency worth $1.36.
The idea was reminiscent of “bancor”, a global currency proposed by John Maynard Keynes in 1941. Like bancor,s aim to share the so-called “seigniorage” benefits that accrue to America as a result of providing the world’s currency. To reinforce their balance-sheets with dollars, countries must, in aggregate, sell goods and services to America and hold on to the proceeds. But whens are issued, everyone gets reserves without having to provide anything in return.
There are several hurdles in the way and these could take months to overcome. Most important, America is reluctant to issue anyshould not be printing money . And, like other countries, it also dislikes the idea of handouts that come with so few strings attached.
It is perhaps no surprise that America has doubts about an instrument first designed to reduce the dollar’s dominance. Keynes proposed bancor just after sterling lost its sway. It might take the emergence of a serious challenger to the dollar’s crown before America sees the appeal of the
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