The International Monetary Fund (IMF) plans to disburse fund worth $650 billion in special drawing rights for poor countries.

The global economy is recovering from the external shock of Covid-19 pandemic faster than expected last year, Thanks to all the doctors, nurses, medical workers, policeman, scientist and Others who risk their lives to help others.

Thanks to Bureaucrats, Policy makers, and Entities for rapid progress in vaccine development. But unfortunately the prospects for recovery are uncertain and uneven, within and across the countries.

Pandemic is still growing exponentially in many parts of the world and many national economies are facing the risk of collapse like:- Lebanon, Venezuela, Nigeria, South Sudan, Mozambique, Burkina Faso, Ethiopia, Democratic republic of Congo, Syria, Yemen.

The International Monetary Fund (IMF) approved a plan of 650 billion dollar of financial support to help troubled countries buy vaccines, finance their healthcare sector and even pay-down debts. 

The Fund will be created by IMF through an allocation of Special Drawing Rights. 

What is Special Drawing Rights (SDR)?

Ans:-  The Special Drawing Rights (SDRs) are an international reserve Asset, created by the International Monetary Fund (IMF).

➟It was created in 1969 as a supplementary international reserved Asset. Initially SDR was defined as equivalent to 0.88867 grams of gold, Which was also equivalent to one U.S Dollar at that time. After the collapse of Bretton Woods system, the SDR was redefined as a weighted basket of currencies.

➟SDRs are unit of account for the IMF. A units of account is something that can be used to value goods & services and make calculations. In other word it is a measurement for value. 

➟The value of an Special Drawing Right is based on a weighted basket of the world's five leading currencies:- the US Dollar, Euro, Chinese Yuan, Japanese Yen, and the UK Pound.

➟The Special Drawing Rights are essentially a Line-of-credit that can be cashed in for hard currency by member nations of the IMF. Each of the 190 member countries receives an allotment of SDR based on its shares in the fund.

➟It is just as a central bank can print its own currency, the IMF can create SDRs. But this is not something that is undertaken lightly, it requires a vote of at least 85% of total votes held by IMF members. and the United States hold 16.51% of the votes so United State's consent is essential if SDRs are to be created.

How do Special Drawing Rights Work?

Step 1:- Allocation of SDRs:- The IMF allocates SDRs to each country based on their individual quotas.

Step 2:- Trade SDRs for currency:- 

Step 3:- Use:-

For example if the United state buys a sets of SDRs from say Syria, it will Earn interest on those SDRs and Syria would be paid for the sale, could use the money to buy what it needed.

♦ Countries that convert their SDRs into hard currency do not have to pay back that hard currency by any specific deadline, They just have to pay any interest owed to the IMF.

♦ Countries can Buy & Sell their SDRs by entering into Voluntary trade arrangements, Facilitated by the IMF.

♦ The IMF calculates a weekly interest rate, which is based on a weighted average of representative interest rates on short-term debt in the money markets of the SDR basket currencies.

♦ No interest is payable on SDRs allocated to a country by the IMF.

♦ Interest is payable by, A member country that has sold some or all of its SDRs it was allocated → to → the country that bought SDRs more than it was allocated by IMF.

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