US Treasury Sec Bessent: US is looking to expand leadership in IMF/World Bank

US Treasury Sec Bessent is speaking on Capitol Hill in front of the US House financial services committee

• US is looking to expand leadership in IMF/World Bank
• as IMF SDR process should serve US interests
• IMF should not help large, well-financed countries through SDR allocations
• US should have a red light or greenlight rules for help sound investment, no yellow zone.

SDR stands for Special Drawing Rights, and it’s an international reserve asset created by the International Monetary Fund (IMF) to supplement its member countries’ official reserves.

Here’s a breakdown:

• Not a currency: The SDR isn’t a currency you can use in the market. It’s a potential claim on the freely usable currencies of IMF member countries.

• Basket of currencies: The value of the SDR is based on a basket of five major currencies:

  • U.S. Dollar (USD)

  • Euro (EUR)

  • Chinese Renminbi (CNY)

  • Japanese Yen (JPY)

  • British Pound (GBP)

• Purpose:

  • Helps stabilize global liquidity.

  • Provides IMF members with supplemental reserves, especially in times of balance-of-payments stress.

• How it works:

  • Countries receive allocations of SDRs based on their IMF quotas.

  • They can exchange SDRs for hard currencies among themselves, typically mediated by the IMF.

  • SDRs can also be used to pay charges, fees, or obligations to the IMF.

• Value:

  • The SDR’s exchange rate is updated daily by the IMF based on the market exchange rates of the basket currencies.

Example use case:

In times of global crisis (e.g., the COVID-19 pandemic), the IMF may allocate SDRs to increase global liquidity, helping countries facing currency shortages.

This article was written by Greg Michalowski at www.forexlive.com.