The International Monetary Fund approved a record general allocation of $650 billion in reserve assets, better known as special drawing rights, to help member countries, especially emerging and developing nations, cope with the economic fallout from the coronavirus pandemic.
The allocation is the biggest in the fund's 77-year history and is meant to help boost global liquidity, the multilateral lender said on Monday. The allocation is effective from August 23.
The last time the fund took a similar measure, but on a smaller scale, was in 2009 when it distributed $250bn in SDR reserves to member countries amid the global financial crisis.
IMF managing director Kristalina Georgieva called it a "shot in the arm" for the global economy during an unprecedented crisis.
"The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence and foster the resilience and stability of the global economy," she said.
"It will particularly help our most vulnerable countries struggling to cope with the impact of the Covid-19 crisis."
The assets were created by the fund to supplement the official reserves of its member countries. The SDR is the fund's unit of exchange and is made up of a basket of the world’s five leading currencies – the US dollar, the euro, the yuan, the yen and the UK pound.
While the SDR is not money in a classic sense as it cannot be used to buy things, it is an accounting unit for IMF transactions with central banks and a stable asset in the international reserves of member countries.
The new $650bn allocation is the equivalent to about 456bn SDRs.
Of the $650bn allocation, about $275bn will go to emerging markets and developing countries, including low-income nations, the multilateral lender said.
“We will also continue to engage actively with our membership to identify viable options for voluntary channelling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth," said Ms Georgieva.
One of the main options for members that have strong external positions is to voluntarily channel part of their SDRs to scale up lending for poor countries through the multilateral lender's Poverty Reduction and Growth Trust, the fund said. Concessional support through the programme is currently interest-free.
The IMF is also exploring other options to help poorer and more vulnerable countries in their recovery efforts. A new Resilience and Sustainability Trust could be considered to enable more sustainable growth in the medium term, it said.
The new SDR allocation was initially backed by the G20 in April.
Reserves are allocated to the 190 members of the IMF in proportion to their quota. About 42.2 per cent corresponds to the share of emerging market and developing economies, of which 3.2 per cent corresponds to poor countries, according to the Washington-based lender's website.
The funds are intended to help countries to free up resources for health care and social spending amid the Covid-19 pandemic that has resulted in the worst economic crisis in 2020 since the Great Depression.