US Treasury Secretary Yellen defends IMF reserve increase aimed at poor nations

IMF Managing Director Kristalina Georgieva on Tuesday said the fund wants to increase its allocation of special drawings rights (SDR) by $650 billion with the aim of safeguarding the financial health of impoverished countries.

US Treasury Secretary Janet Yellen on Wednesday defended the IMF's move to increase its reserve offerings, calling the increased aid a "joint effort" to help the poorest nations hit by Covid-19.

Yellen added that many countries intend to forgo their SDR increase in favor of poor countries, which would magnify the impact of the new allocations.(AP)

IMF Managing Director Kristalina Georgieva on Tuesday said the fund wants to increase its allocation of special drawings rights (SDR) by $650 billion with the aim of safeguarding the financial health of impoverished countries.

Yellen defended the raise in response to questions from lawmakers on the Senate Banking Committee who were concerned the money would aid rich countries that don't need it, including Washington's rivals.

"I would say that the current crisis has increased the need for global reserves, and that's the IMF's assessment. The global economy suffered a very severe, severe collapse in 2020," Yellen said in testimony alongside Federal Reserve Chair Jerome Powell.

"This allocation will help countries meet this need for reserves."

Yellen added that many countries intend to forgo their SDR increase in favor of poor countries, which would magnify the impact of the new allocations.

Georgieva will submit her proposal to the IMF Board in June, which if approved would be the first SDR increase since 2009, amid the downturn caused by the global financial crisis.

Finance ministers from the G7 richest countries, including the United States, agreed last week to support the IMF move.

SDRs, created by the International Monetary Fund in 1969, play an influential role in global finance and help governments protect their financial reserves against global currency fluctuations.

It is also used as the basis of loans from the IMF's crucial crisis-lending facilities.

While not a true currency itself -- there are no SDR coins or banknotes -- the IMF uses it to calculate its loans to needy countries, and to set the interest rates on those loans.