The Economic, Social And Environmental Potential Of Sdrs

The global climate finance agenda is currently insufficient to limit climate change and foster a just transition. Too much is expected from domestic resource mobilization and blended finance. New and innovative financing mechanisms are needed. The IMF’s Special Drawing Rights (SDRs) could provide a way forward. Several proposals to rechannel unused SDRs have been tabled, predominantly via the IMF or Multilateral Development Banks (MDB’s). The IMF Trusts designed for rechanneling purposes face limitations in terms of eligibility, conditionality and disbursement. Rechanneling via MDB’’s has significant benefits as MDB’s have a development mandate and are experienced with delivering finance for development and a just transition. The African and Inter-American Development Bank have proposed a Hybrid Capital Instrument (HCI) with a leverage potential of 1:4, increasing the SDRs’ clout. This briefing examines the economic, social and environmental potential of SDRs and compares rechanneling options via the IMF and MDB’s. It calls for swift effectuation of the HCI, reforms of the IMF Trusts and renewed and regular SDR issuance, with a coordinating role for the G20.