彼得森经济研究所-国际货币基金组织应加强特别提款权的作用以加强国际货币体系

WORKINGWORKINGPAPER22-20TheIMFShouldEnhancetheRoleofSDRstoStrengthentheInternationalMonetarySystemEdwinM.TrumanDecember2022ABSTRACTThespecialdrawingright(SDR),issuedbytheInternationalMonetaryFund(IMF),hasthepotentialtostrengthendramaticallytheinternationalmonetarysystem.Establishedin1969andallocatedtwiceduringitsfirstdecade,theSDRwasintheinstitutionalclosetfrom1980until2009,when$250billioninSDRswasallocatedtomembersoftheIMFtohelpaddresstheglobalfinancialcrisis.In2021another$650billioninSDRswasallocatedtohelpaddressthecoronaviruspandemic.TheSDRhasproveditselfasacrisisinstrument.ThispaperaddressescriticallytheargumentsagainstSDRallocations.ItproposesregularannualSDRallocations,alongwithmeasurestomaketheSDRmoreattractivetocriticsandmeasurestobuildouttheSDRsysteminsupportoftheinternationalmonetarysystem.ThepaperincludesanappendixonthehistoryoftheSDR.AsecondappendixanalyzesSDRusefollowingthe2009and2021allocationsandfindsthatcontrarytothepopularmyth,manycountriesotherthanlow-incomemembersoftheIMFbenefiteddirectlyinmultiplewaysfromthoseallocations.EdwinM.TrumanisseniorfellowattheMossavar-RahmaniCenterforBusinessandGovernmentattheHarvardKennedySchool.HewasseniorfellowandthennonresidentseniorfellowatthePetersonInstituteforInternationalEconomicsthroughDecember2020.JELCodes:F32,F33Keywords:InternationalMonetaryFund,SpecialDrawingRight,InternationalMonetaryArrangementsandInstitutionsAuthor'sNote:IhavebenefitedfromcommentsonearlierdraftsandassistancefromJamesBoughton,WarrenCoats,ChristopherG.Collins,JulietaContreras,MadonaDevasahayam,BarryEichengreen,JeffreyFrankel,JosephGagnon,EgorGornostay,MeganGreene,EdwardGemayal,AtishRexGhosh,SeanHagan,YusukeHoriguchi,DenisLamb,RobertLawrence,SusannLuetjen,MegLunsager,AdnanMazarei,RobertMcCauley,MauriceObstfeld,MarkPlant,LarryPromisel,KennethRogoff,AsherRose,AnjumRosha,LauriScherer,CarloSdralevich,BradSetser,staffoftheIMFFinanceDepartment,LawrenceSummers,TracyTruman,NicolasVéron,andLongmeiZhang,aswellasfromparticipantsinresearchmeetingsofseniorfellowsattheMossavar-RahmaniCenterforBusinessandGovernmentandatthePetersonInstituteforInternationalEconomics.Iamsolelyresponsiblefortheviewsexpressed.1750MassachusettsAvenue,NW|Washington,DC20036-1903USA|+1.202.328.9000|2WP22-20|DECEMBER20222INTRODUCTIONTheInternationalMonetaryFund(IMF)istheprincipalinstitutionofinternationalmonetarycooperation.Thededicationandexpertiseofitsmanagementandstaffareessentialtoitssuccess.TheIMF’sinstitutionalcentralityinthepost-WorldWarIIinternationaleconomyandfinancialsystemrestsontwokeypillars.First,theIMF’sfinancialresourcesareprepositioned.Thisallowsittosupportamemberofthesystemexpeditiously.Thehatdoesnotneedtobepassedaroundeachtimeaneedforfinancialassistancearises.Second,theIMFcanallocatespecialdrawingrights(SDRs)tomembers,enablingeachholdertoborrowforeignexchangedirectlyfromothermembers.UnlessmembersagreetocanceloutstandingSDRs,theyarepermanentadditionstocountries’internationalreserves,unlikecurrencyreservesthat,oncespent,disappearfromthesystem.ThecentralmonetaryrolefortheSDRisenshrinedintheIMFArticlesofAgreementinanobligation,notcurrentlyrealized,tomaketheSDRtheprincipalreserveassetoftheinternationalmonetarysystem.NeitherIMFquotaresourcesnorSDRscanbedeployedwithouttheconsentofamajority,orinthecaseofSDRsasupermajority,voteofmembers.ItisIMFmembers,notthemanagement,thatcontroltheinstitutiononimportantissues.Managementmaypropose,buttheexecutiveboard(representingthemembers)disposes.TheIMF’sArticlesofAgreementdocommitmemberstocooperate.Atsometimesmembersfinditeasiertofulfillthatcommitmentthanatothertimes.TodaytheIMFisatanexistentialcrossroad.ThestructureoftheIMF’sresourcepillarisdecaying.MembershavenotagreedtoaugmenttheFund’sstandingfinancialresources(quotasubscriptions)since2010.Asaresult,thedistributionofvotingpower,whichisafunctionofmembers’sharesoftotalquotas,hasbeenfrozenandisincreasinglyinconsistentwithglobaleconomicrealities.ThestalemateoverincreasingIMFquotasandadjustingtheirdistributionthreatenstounderminetheIMF’slegitimacy.Unlesscorrected,thepoliticalandfinancialunderpinningsoftheIMFwillweaken,andthecollectivecommitmenttocooperationthroughtheIMFthathassupportedmorethan75yearsofremarkableglobalgrowthandprosperitywillfray.OnSDRallocations,thesecondpillar,IMFmembershavefailedtocapitalizeonthepotentialofthistool.TheSDRwascreatedtosupplementexistingreserveassetsandsupporttheBrettonWoodsregimeoffixedexchangerates.CountriesestablishedparvaluesagainsttheUSdollar,whichinturnwastiedtogoldatthefixedpriceof$35perounce.ThestructurewassupportedbytheUnitedStatesstandingreadytosellgoldatthatpricetogovernmentsthathadacquiredUSdollarsinpreventingtheirexchangeratesfromappreciating,aswellastobuygoldfromthemwhentheyneededdollars.TheSDR’sestablishmentcametoolatetopreservetheBrettonWoodsexchangerateregime.SDRallocationsfirstweremadein1970-72,startingbeforetheUnitedStatescloseditsofficialgoldwindowinAugust1971,andasecondsetofallocationswasmadein1979-81(table1).Notuntil2009wasthereanotherSDRallocation.Itwasagreedoninconnectionwiththe2008-10globalfinancialcrisisandwasfollowedbyafourthallocationin2021inconnectionwiththecoronaviruspandemic.11Agreementwasreachedin1997onaspecialallocationofSDRsprimarilytocountriesthathadjoinedtheIMFafterthesecondallocation.However,theUnitedStatesdidnotgiveitsapprovaluntil2009inthecontextoftheglobalfinancialcrisis,andsothespecialallocationwentintoeffectthatyear.SeeappendixAforabriefhistoryoftheSDR.3WP22-20|DECEMBER20223Table1Allocationsofspecialdrawingrights,1970-2021DateSDRallocationCumulativeSDRallocationsBillionsofSDRBillionsofUSdollarsaBillionsofSDRBillionsofUSdollarsa1970-79.381August28,2009252.1285.6September9,200933.8204.1August23,2021456.5647.5660.6937.0Memo:September30,2022n.a.n.a.660.6845.5n.a.=notapplicable;SDR=specialdrawingrighta.TheUSdollar/SDRexchangerateonthedateoftheallocationisusedfortheconversionintoUSdollars;theaverageJanuary1980ratewasusedforthesecondallocation.Note:FigureforSeptember9,2009,allocationincludesSDRsthatwereallocatedtomembersjoiningtheIMFafterthisdate.Sources:InternationalMonetaryFundandauthor’scalculations.InthispaperIfocusprimarilyonthesecondpillaroftheIMF—theSDR—andmakerecommendationstostrengthenitsroleandtherebytheinternationalmonetarysystem.2TheIMFanditsmembersshouldonceagainrethinktheroleoftheSDRasatooloftheinstitution.TheyshouldexaminewhethersomeofthecurrentprovisionsgoverninghowSDRsareusedandexchangedpromoteorhindertheSDR’spotentialrolesintheinternationalmonetarysystem.InthiscontextmyprincipalrecommendationisthattheIMFshoulddecidetoallocateSDRsannually.TomakethisrecommendationmorepalatabletomembersthatgenerallyopposeSDRallocations,IproposeraisingtheinterestrateontheSDR.IalsoproposechangesintheoperationoftheIMFandthetechnicalarrangementsgoverningSDRusethatwouldstrengthenandupdatetheirfunctionsintoday’sinternationalmonetarysystem.Finally,Iproposedoublingtheprotectedcollectivequotashareoflow-incomemembersoftheFund,whichinthelastincreaseinquotaswas3.3percent,inthe2023quotanegotiations.TheIMFallocatesSDRstoitsmembersinproportiontotheirpaid-inquotasubscriptions;theyarerecordedonmembers’balancesheetsasbothassetsandliabilitiesoftheholder,whichiseitherthecentralbankorthefinanceministry.CountriesreceiveinterestontheirSDRassetsandpaythesamerate2TheSDRmaybe,andistoalimitedextent,usedasaunitofaccount.Inprinciple,SDR-denominatedinstrumentscantradeinprivatemarkets.TheWorldBankissuedanSDR-denominatedbondinChinain2016.TheSDRalsomightreplacetheUSdollarandotherinternationalcurrenciesininternationalfinance.TheseotherpotentialfeaturesoftheSDRmaybeusefulby-products,butwithouttheSDRplayingitscentralmonetaryrole,itisdifficulttoenvisionthatitwouldbepositionedtoplayanyotherroleonalargescale.4WP22-20|DECEMBER20224ofinterestontheirSDRliabilities.Totheextentthatacountry’sSDRholdingsexceeditscumulativeallocations,itreceivesnetinterestandviceversa.3MembersreceivingSDRscantransferthemtoothermembersinexchangeforconvertible,orhard,currenciestomeettheirexternalfinancialneeds.4TheyalsocanbeusedtodischargeobligationstotheIMF,othermembers,orotherdesignatedSDRholders.TheSDRwasestablishedin1969tosupplementexistingreserveassetsandtherebytoservethepurposesoftheIMF.5Thosepurposesincludepromotinginternationalcooperation,reducinginternationalbalance-of-paymentsdisequilibria,andlendingtomembersinsupportofadjustmentpoliciesthatminimizedisruptionstonationalandinternationalprosperity.Inotherwords,thepurposeoftheSDRistosupporttheinternationalmonetarysystemandtosmooththeinternationaladjustmentprocess.Startingintheearly1960s,theconceptofwhatbecametheSDRwasdiscussedasamechanismthatcouldalsobeemployedtoaddressobjectivesadditionaltoitsprimarypurposeofsupplementingthesupplyofreserves;forexample,itwasproposedtousethemechanismtoprovidefinancialassistanceandspendingpowertolow-incomecountries.Todayechoesofthesedebatesareheardfromwell-intentionedadvocatesofrecyclingtheSDRissuedinAugust2021tovariousworthycauses.Inmyviewsuchproposalsareunfortunateandunwieldly.TheydistractfromtheSDR’sbasicmonetarypurposeasinternationalreserves.UseoftheSDRfornonmonetarypurposesisunwieldlyduetothecontortionsnecessarytodoso:First,countriestransfertheirSDRstotheIMForanotherinstitutionalholderasprescribedbytheIMF;second,thatinstitutionmusttakeadditionalstepstomobilizethenationalcurrenciesforuseintheiroperationsortoestablishanelaboratestructureonacapitalbaseofSDRswhilepreservingtheliquidityoftheSDR.Ifcountrieswanttosupportlaudableactivitiessuchasclimateadaptationorhealthinfrastructure,theyshoulddosodirectlyandopenlyandnotcamouflagetheirsupportusingtheirSDRholdings.TotalSDRsoutstandingareSDR660.7billion,or$922.1billionattheUSdollarvalueoftheSDRattheendofDecember2021.6Inthewakeofthe2021allocation,theSDR’sshareofforeigncurrencyreservesplusSDRholdingsinDecember2021was7.1percent,significantlylessthanthesharesoftheUSdollarandeuro(55percentand20percentrespectively)butathirdmorethanthenextlargestshare—theJapaneseyen(IMF2022f).3Theinterestrateissetweeklyastheweightedaverageoftheshort-termgovernmentinterestratesontheamountsofnationalcurrenciesintheSDRbasket.OnSeptember30,2022,theratewas2.007percentperannum.TheSDR’svaluetracksabasketoffixedamountsoffivecurrencies:theUSdollar,Japaneseyen,euro,poundsterling,andChineserenminbi.4Thetransfersystemhastwotiers:FirstisamarketmanagedbytheIMFstaffinwhichmembersthathavevoluntarytradingarrangements(VTAs)acceptSDRsfromothermembersinexchangefortheircurrencyoroneoftheothercurrenciesintheSDRbasket.SecondisadesignationmechanismthatcomesintoplaywhentheIMFstaffcannotidentifyanothermarketparticipant.Thissecondmechanismhasnotbeenusedsince1987.5SeeIMFArticlesofAgreement,ArticleI.6OneSDRwasthenequalto$1.399593.OnSeptember30,2022,itwasequalto$1.279880.5WP22-20|DECEMBER20225SDRallocationsin2009and2021playedausefulcrisismanagementrole.Manycountriessmallandlarge,andlow-andmiddle-income,usedtheirSDRsthroughvariousmechanismstorelaxtheexternalfinancialconstraintontheirdomesticeconomicpoliciesandthuscontributedtoglobaleconomicandfinancialadjustment(seeappendixB).AstheIMFArticlesofAgreementintended,SDRadditionstoexistingreserveassetsallowedmemberstoaddressactualandpotentialmaladjustmentsintheirinternationalpaymentswhileavoidingpoliciesdestructiveofnationalorinternationalprosperity.IftheSDRisgoingtocontinuetoplayitsroleinaddressingeconomicdisruptions,itsshareofinternationalreservesshouldbeatleastmaintained,thusavoidingtheneedtotakeemergencyactionafteracrisisoccurs.Themostdirectwayofdoingsoisviaannualallocations.SDRallocationsareazero-costwayofaugmentingcountries’internationalreserveswithoutdistortingthepatternofinternationalpaymentsbyplacingburdensoncountries,inparticulartheUnitedStates,thatissueinternationalcurrencies.ThemanagingdirectoroftheIMFisrequiredtoreporttothegovernorsoftheIMFbeforethestartofeveryfive-yearbasicperiodonsupport,orlackofit,amongIMFmembersforanSDRallocationduringtheforthcomingbasicperiod.7RegularannualallocationswouldbeconsistentwiththeroleenvisionedfortheSDRintheIMFArticlesofAgreement,“thespecialdrawingright[shouldbe]theprincipalreserveassetintheinternationalmonetarysystem”(IMFArticleVIII,Section7).BeforeturningtomyproposalforannualSDRallocationsandrelatedproposalswithrespecttotheSDRandtheinternationalmonetarysystem,IwillreviewtheargumentsagainstSDRallocationsandprovidemycounterarguments.ARGUMENTSAGAINSTSDRALLOCATIONSTheargumentsagainsttheSDRanditsallocationhavenotchangedsubstantiallysincethedebatesofthe1960spriortothe1969amendmentoftheIMFArticlesofAgreementthatestablishedtheSDR.•SDRsarenotneededtodaytomeetalong-termglobalneedtosupplementreserveassets,whichareplentifulandcanbeborrowedinthemarket.•UseofSDRsisunconditional,contributingtomoralhazardincountries’economicpolicychoices.•SDRallocationsinproportiontoIMFquotasharesleadtotheirmaldistribution.•SDRallocationsaddtoglobalinflation.•ThegeopoliticalviewsofsomemembercountriesleadthemtoopposeanyallocationofSDRs.7The12thbasicperiodstartedonJanuary1,2022.SDRallocationneednotbemadeduringallfiveyearsofabasicperiod.ThemanagingdirectoralsomayproposeanSDRallocationatanypointwithinabasicperiod.6WP22-20|DECEMBER20226Long-TermGlobalNeedOpponentsofSDRallocationscitethecriterionembeddedintheIMFArticlesofAgreementthatanSDRallocationmustmeetanidentifiedlong-termglobalneedtosupplementexistingreserves.8TheIMF“originalists”arguethattheSDRwasestablishedinthecontextoftheBrettonWoodsfixed-exchange-ratesystem;todaycountriescanborrowinternationalreservesand/orallowtheirexchangeratestoadjust—inotherwords,theycanobtainunconditionalcreditfromthemarkets.Iftheycannotborrowfrommarkets,theyarenotcreditworthy,andtherefore,theyshouldnothaveaccesstounconditionalliquiditysuppliedbyothercountriesviatheSDR.Instead,theyneedIMF-supportedprogramsofeconomicadjustment.TheargumentthattheendoftheBrettonWoodsfixedexchangeratesundercutthecaseforalong-termglobalneedfallsbeforethefactthattheseconddecisiontoallocateSDRswasin1979.Onlyayearearlier,theIMFArticlesofAgreementhadbeenamendedtopermitfloatingexchangerates.Inotherwords,ajudgmentwasmadethattheSDRallocationprovidedbenefitsinthereformedinternationalmonetarysystem,whichistoday’ssystem.Moreover,experiencehasshownthatacurrentabilitytoborrowisneithernecessarynorsufficientforjudgingacountry’smedium-termcreditworthiness.LackofConditionalityAsecondargumentagainsttheSDRisthatamember’suseofitsSDRallocationisessentiallywithoutconditions.9CountriesborrowingfromtheIMFmustsatisfy,orpledgetosatisfy,conditionsontheireconomicpolicies.Thestrengthofthoseconditionsdependsonthedepthofthecountry’sproblems,itscurrentpolicies,itseconomiccircumstances,andthefacilityorwindowfromwhichitisborrowing.TheflawinthisargumentisthatusingSDRsisnotborrowingfromtheIMF.Itisborrowingdirectlyfromothermembercountries,andthecountryusingitsSDRmustpayinteresttothosecountries.Thisargumentisnotaboutpolicyconditionality,itisaboutwhethertheIMFshouldbeinthebusinessofallocatingSDRs.Thatdecisionwasmadein1969andhasnotbeenreversed.Moreover,theIMFisunabletoplaceconditionsonmembercountries’useoftheirownedreservesacquiredeitherbyborrowingorbygeneratingcurrentaccountorcapitalaccountsurpluses.WhyshouldtheFundhavethepowertoplaceconditionsonamember’suseofitsSDRholdings?Ofcourse,allusesofreservesaresubjecttoexpostreviewaspartoftheIMF’ssurveillanceofmembers’policiesandprospects.8IMFArticlesofAgreement:ArticleXVIII,Section1.Principlesandconsiderationsgoverningallocationandcancellation(a)InallitsdecisionswithrespecttotheallocationandcancellationofspecialdrawingrightstheFundshallseektomeetthelong-termglobalneed,asandwhenitarises,tosupplementexistingreserveassetsinsuchmanneraswillpromotetheattainmentofitspurposesandwillavoideconomicstagnationanddeflationaswellasexcessdemandandinflationintheworld.9Technically,thecountrymusthavea“need”touseitsSDRsandshouldnotusethemmerelytodiversifyitsreserveholdings,butthesearenotbindingconditions.7WP22-20|DECEMBER20227FlawedDistributionofSDRsTheargumentthatthedistributionofSDRsisflawedhasbeenfrequentlyheardfromtheothersideoftheSDRdebate.Inthe1960srepresentativesofsomecountriesarguedthatSDRsshouldbeallocateddisproportionatelytocountrieswiththegreatestneedforadditionalinternationalreserves—toemergingmarketanddevelopingcountriesandlow-incomecountries.Advancedcountrieswouldthenhavetoacquirethembytransferringrealresourcestothosecounties.Thistopicwasrevisitedinthe1970sduringthedeliberationsoftheCommitteeonReformoftheInternationalMonetarySystemandRelatedIssues(CommitteeofTwenty,orC-20)intheformofdiscussionsofestablishingalinkbetweenaportionofeachSDRallocationandaidtolow-incomecountries—anSDR/aidlink.10Todaythisargumenthasbeenturnedonitshead.Opponentsofthe2021SDRallocationarguedthattheallocationwouldgotocountriesthatdonotneedadditionalinternationalreservesandonlyasmallportionofanallocationwouldgoto,andbeusedby,low-incomecountries.Itiscorrectthatthecombinedquotashareoflow-incomecountriescurrentlyhasbeenconstrainedbyagreementtobeatleast3.3percentoftotalquotas.11ThatthesecondpartofthisargumentisincorrectisshownbytheanalysispresentedinappendixBonSDRusefollowingthe2009and2021allocations.Althoughthelow-incomecountriesusedalargerproportionoftheirnewallocations,themiddle-incomeemergingmarketanddevelopingcountriesaccountedforamuchlargershareoftotaluseofthoseallocations.Between85and90percentofSDRuseduringthefirsteightmonthsaftertheseallocationswasbymiddle-incomecountries.12OpponentsofSDRallocationsalsoarguethatthehigh-incomecountriesdonotneedtheSDR.However,theopponentsdonotexplainwhatharmisdonetotheinternationaleconomyandfinancialsystembyincreasingthesecountries’SDRholdings.ThesecountriesdonothavetousetheirSDRs,andtheyarefreetolendthemtoothercountriesorto“recycle”theirSDRsthroughloanstotheIMF;forexample,totheIMF’s(2022b,2022c)newResilienceandSustainabilityTrust(RST).SDRAllocationsContributetoInflationInthe1960sand1970s,inflationwasamajorconcernofpolicymakersinmanycountriesandoftheIMFaswell.Untilrecently,inflationconcernshavebeenquiescent,andwedonotknowwhethercurrentconcernswilllastmorethantwoorthreeyears.ButtheinflationargumentagainstSDRallocationshasalwaysbeenspecious.TheargumentisthatSDRallocationswillbedirectlyinflationarybyaddingtocentralbankliabilitiesandmonetaryaggregatesorbystimulatingglobalaggregatedemand.TheargumentisunsupportedbythehistoricalevidenceaswellastheanalysisbyRichardN.Cooper(IMF2011a)andothers.Insummary,allocationsaddtoboththeassetsandliabilitiesofcentralbanks;theydonot10SeeIMF(1974).11ThispercentageislargerthanwhatwouldbeindicatedbytheIMF’scurrentquotaformula.12“Use”isdefinedasthegrossdeclinesinholdingsofSDRsaftertheallocations.8WP22-20|DECEMBER20228increasethereservesthatbanksholdatthecentralbank.IfthecentralbanksuppliesacurrencyotherthanitsowninexchangeforSDRs,thattransactiontakesplaceontheassetsideofitsbalancesheet.IfthecentralbanksuppliesitsowncurrencyinreturnforanincreaseinitsSDRs,anytransactionwouldbesmallrelativetothestockofbanks’reservesatthosecentralbanksacceptingtheSDR.Moreover,notallSDRtransactionsflowthroughtheaccountsofcentralbanks.Andtheydonotcontributetoinflationifthecentralbanksuccessfullypursuesitsbasicpolicyobjectiveoflimitinginflation.EvenifmanycountriessimultaneouslyspendtheirSDRsongoodsandservicesafteranallocationtosupportexpansionaryeconomicpolicies,theaggregatesizeofanyeffectwouldbetrivial.HalfthecurrentstockofSDRsislessthan$500billion:Thatislessthanone-halfof1percentofglobalGDP,whichismorethan$100trillion.ThisargumentagainsttheSDRisanargumentaboutthestockofinternationalreserves,notaboutflowincreasesinreservesinthecontextofdeficientglobalaggregatedemand.Itappliestocountries’stocksofreservesinanyform,ofwhichmorethan90percentisinholdingsofnationalcurrencies.Itfollowsthatevenundercurrentcircumstancesinwhichinflationhasbecomeaglobalchallenge,thosecountriesthatmightusetheirSDRholdingstosupporttheireconomiesareunlikelytoprovidemuchofaboosttoglobaldemand.Moreover,manyofthosecountrieshaveyettorecoverfromtheadverseeffectsofthepandemiconeconomicactivityintheireconomies.TheSDRIsagainstOurPhilosophyThebroadestcritiqueagainsttheSDRisgroundedincountries’attitudestowardinternationalcooperationingeneralandinternationalinstitutionsofcooperation.Thiscritiquetakesseveralforms.Firstisoppositiontoforeignaidinanyform.ThiscriticismisnotuniquetoparticipationintheSDRmechanismormembershipintheIMFforthatmatter.Second,atatechnicallevel,oppositionisgroundedinthecosttotheUnitedStatesortoothercountriesholdingmoreSDRsthantheirallocationsbecauseoftheirfacilitatingtheuseofSDRsbyothermembers.13However,fortheUnitedStatesthesecostsareminuscule.Formorethan20years,theUSCongresshasrequiredtheUSDepartmentoftheTreasurytoreportonthecosttotheUnitedStatesofparticipationintheSDRregime.Initslatestreport(USDepartmentoftheTreasury2021),thetotalnetinterestcosttotheUnitedStates—thedifferencebetweentheinteresttheUnitedStatesreceivesonitsholdingsofmoreSDRsthanitsallocationsandthecosttotheUSDepartmentoftheTreasuryofborrowingtosupplydollarsinexchangeforthoseSDRs—hasbeen$52million(notbillion)overthepast20years,$2.6millionayearonaveragethroughtheendofFY2020.Ontheotherhand,overthesameperiodtheUnitedStatesrecordedacumulatedcapitalgainof$724milliononitsholdings,or$36.1millionperyear.Inaworldinwhichmanyproblemsarenotconfinedwithinnationalbordersbutthereexistpoliticalpressurestoputtheshort-terminterestsofacountryfirstandundervaluethelonger-termbenefitsofcooperation,knee-jerkopposition13SeeAdamLerrick(2003)forthisargument.HealsofocusesontheexchangevalueriskofholdingexcessSDRs.9WP22-20|DECEMBER20229toSDRallocationsisnotsurprising.ThisoppositionincludestheviewthatsomecountriesthatwillreceiveSDRs—suchasBelarus,China,Iran,Russia,Syria,andVenezuela—donotsharethepoliticalvaluesofothermembers.AsisreportedinappendixB,almostallthesecountrieshavenotusedtheirSDRallocations—theirholdingsapproximatelyequaltheircumulativeallocations.However,thesecountries’combinedshareofIMFquotasisonly10.8percent,or4.4percentexcludingChina,whichisanetholderofSDRs.14Thequestionis:ShouldthebenefitsofanSDRallocationtotheother184countrieswith89.2percentofquotasbedeniedbecausesomecountriesthatwillpotentiallybenefitdonot,intheviewofsome,deservetobenefit?Thosevaluingthelonger-termbenefitsofcooperationwillansweryes.THECASEFORREGULARANNUALSDRALLOCATIONSThecaseformoderate,regularannualallocationsofSDRshasfivemainelements.First,SDRallocationshavezerocosttotherecipientcountryuntilorunlessitusesitsallocation.SDRsareaninsurancepolicy,intheformofapotentiallineofcredit,withalowpremiumthatonlykicksinwhenthepolicyisactivatedviaatransferofSDRstoanotherholder.Second,theircostislowcomparedwiththepositiveresourcecostsofexantereserveaccumulationviaborrowingfromglobalfinancialmarketsordevotingrealresourcestogeneratecurrentaccountsurplusesratherthandomesticinvestment.Third,fromaglobalperspective,theaccumulationofreservesintheformofSDRallocationsinvolveslessdistortionoftheglobaleconomicadjustmentprocessthandoingsoviaund