Credit Transactions by the Fund in SDRs

International Monetary Fund
Published Date:
January 1979
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It would seem unlikely that in order to provide this new facility for its members the Fund would have found it necessary to split itself into two Departments and to require each member to make a contribution equal to its quota, with one fourth normally payable in SDRs and the remainder in the member’s own currency.12 Rather, the following approach would have seemed natural.

(1) There would, of course, be a need for a set of provisions determining access to Fund credit, repayment of this credit, and the interest charged for it. These provisions could follow the general lines of the present Article V, Section 3 (Conditions governing use of the Fund’s general resources), subsections (a), (b), and (c); Section 4 (Waiver of conditions); Section 5 (Ineligibility to use the Fund’s general resources); Section 7 (Repurchase by a member of its currency held by the Fund); and Section 8 (Charges), subsections (a), (b), (c), and (d).

(2) The credit operations of the Fund under these provisions would be conducted in SDRs. Any extension of credit by the Fund would lead to a corresponding creation of SDRs; any repayment to an equal cancellation of SDRs. These fluctuations in the amounts of reserves outstanding would not involve a change in substance from present practice, only one of form: under present practice, similar reserve creation takes place in the form of reserve positions in the Fund when the Fund sells currencies (of members not indebted to the Fund), and reserve destruction when it receives currencies (other than in quota subscriptions). When the Fund sells or receives SDRs, the reserve creation or destruction already takes the form of changes in the aggregate SDR holdings of participants and other holders, since SDR holdings of the Fund are not part of world reserves.

(3) If the Fund conducted its credit operations in SDRs created ad hoc, rather than in contributed currencies, there would need to be an adequate increase in the obligations of members to accept SDRs. To replace each member’s present obligation to make currency available—and hence to acquire a reserve position in the Fund as its currency is sold by the Fund—would require an acceptance obligation for each member equal to its quota. This would be needed in addition to the acceptance obligations required to make allocated SDRs usable to their holders. Thus, for a member that was also a participant, the total obligation to provide currency against SDRs would then extend to the point where its holdings of SDRs were equal to the sum of its quota plus three times its net cumulative allocation.

(4) There would be no change in the mechanism for the allocation of SDRs, although this would no longer be the sole mechanism for the creation of SDRs.

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