The U.S. Treasury Department in Washington, DC on Friday, March 19, 2021.
Samuel Corum | Bloomberg | Getty Images
The Treasury Department is working with the International Monetary Fund to provide monetary aid of up to $ 650 billion to countries hardest hit by the Covid-19 pandemic.
An announcement by the Treasury Department on Friday showed it was helping the IMF allocate $ 650 billion in Special Drawing Rights, which “would help build reserve buffers, smooth adjustments and mitigate the risks of economic stagnation in global growth.” “.
SDRs are currency reserves that countries can use to supplement their foreign exchange assets such as gold and US dollars.
The Treasury Department’s announcement indicated that the allocation of SDRs is within the level the department is allowed to allocate without the approval of Congress. Treasury Secretary Janet Yellen and Senator John Kennedy, R-La., Had a heated discussion on the SDR issue during a public hearing recently.
In essence, the deal would allow countries to exchange their SDRs for US dollars. Global demand for American currency has been a recurring problem throughout the pandemic and has resulted in the Federal Reserve running a robust dollar swap program around the world as well.
The Treasury Department would exchange SDRs for dollars it holds in the Exchange Stabilization Fund. This, in turn, would require the government to borrow more money and create some coastline, namely the difference between the interest on the SDR and the interest on government bonds.
“These potential implied costs are much less than the benefits of a strong global recovery,” the department said in the press release.
“Addressing long-term global reserves would help support the global recovery from the COVID-19 crisis. A strong global recovery would also increase demand for US exports of goods and services – creating US jobs and US -Companies support “statement added.
