Use of SDRs in the Acquisition of Hybrid Capital Instruments of the Prescribed Holders

International Monetary Fund

No 2024/026, IMF Policy Papers from International Monetary Fund

Abstract: On May 10, 2024, the IMF’s Executive Board approved the use of Special Drawing Rights (SDRs) for the acquisition of hybrid capital instruments issued by prescribed holders. This new use of SDRs, which adds to seven already authorized prescribed SDR operations, is subject to a cumulative limit of SDR 15 billion to minimize liquidity risks. The Executive Board also established a strong expectation that contributors channeling SDRs to prescribed holders under such capital contributions have Voluntary Trading Arrangements (VTAs) in place to ensure sufficient liquidity and equitable distribution of potential SDR exchanges into currencies. A review of the proposed use is expected to be conducted when cumulative hybrid capital contributions surpass SDR 10 billion or two years after the authorization, whichever comes first.

Keywords: Special Drawing Right; Hybrid Capital Instrument; Voluntary Trading Arrangement; Reserve Asset; SDR channeling; Prescribed Holders; IMF members channeling SDR; capital instrument; use of SDR; prescribed SDR operation; transparency policy; Reserve assets; Currencies; Loans; Liquidity risk; International monetary system; Global (search for similar items in EconPapers)
Pages: 31
Date: 2024-05-15
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