IMF Quotas and Special Drawing Rights (SDR)

The executive board of the International Monetary Fund (IMF) approved a proposal to make a 50 per cent increase in the quota allocated to members in proportion to their current quotas.

  • Now, the proposal will be considered and voted on by the Board of Governors, after which it will be made effective.
  • Quotas are the building blocks of the IMF’s financial and governance structure.
  • Quotas are denominated in Special Drawing Rights (SDRs), the IMF’s unit of account.
  • Use of Quotas is to determine –
    • Resource contribution of a member
    • Voting power in IMF decisions.
    • Members get one vote per SDR100,000 of quota plus basic votes, which are the same for all members.
    • Amount of loans a member can obtain from the IMF.
    • General allocation of SDRs
  • What will be the impacts of the rise in Quotas?
    • Help safeguard global financial stability by enhancing the IMF’s permanent resources
    • Reducing reliance on borrowed resources.
    • Currently, the Fund relies on bilateral borrowing arrangements and pledges to a crisis lending fund called the New Arrangements to Borrow for nearly 60% of its lending resources

Any changes in quotas require approval by 85 per cent of the total voting power, and a member’s own quota cannot be changed without its consent.

  • Presently, India holds 2.75% of SDR quota, and 2.63% of votes in the IMF.
  • 8th largest quota-holding country in the IMF.
  • It is an international reserve asset created by the IMF.
  • Objective – To supplement its member countries’ official reserves.
  • Created in 1969.
  • It is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.
  • It serves as the unit of account of the IMF and some other international organizations.
  • Determination of currency value of the SDR – Summing the values in US dollars, based on market exchange rates, of a SDR basket of currencies.
  • SDR basket of currencies – US dollar, Euro, Japanese yen, pound sterling and the Chinese Yuan (Renminbi) (included in 2016).
  • Genesis: Founded at the Bretton Woods Conference in 1944.
  • Countries must first join the IMF to be eligible to join the World Bank Group.
  • Headquarters – Washington DC
  • India is a member.
  • 3 critical missions –
    • Furthering international monetary cooperation
    • Encouraging the expansion of trade and economic growth
    • Discouraging policies that would harm prosperity.
  • Connections: It cooperates closely with other groups, including G20, and supports the G20’s efforts to sustain international economic cooperation through its mutual assessment process.
  • Key reports: World Economic Outlook and Global Financial Stability Report.

Source: The Hindu


Previous Year Question

Recently, which one of the following currencies has been proposed to be added to the basket of IMF’s SDR?

[UPSC Civil Services Exam – 2016 Prelims]

(a) Rouble
(b) Rand
(c) Indian Rupee
(d) Renminbi

Answer: (d)


Practice Question

Which of the following statement is not correct?

 
 
 
 

Question 1 of 1

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