Context: G20 finance ministers meeting was held under the chairmanship of Saudi Arabia.
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- The meeting failed to reach an agreement regarding fresh allocation of SDR (Special Drawing Rights) or of transferring the excess SDR of rich countries to poor countries amid the pandemic.
- The G20 finance ministers urged private creditors to participate in Debt service suspension initiative (DSSI) on comparable terms when requests were made by eligible countries.
- India and the U.S had earlier objected to increasing the SDR allocation as
- The increased portion would benefit rich countries more due to a higher quota.
- Instead , national Forex reserve should be used as first line of defence
- It is expected that increased SDR would help the countries combat the liquidity crisis as the world economy is expected to contract by 4.9% in 2020.
- It is an international forum for the governments and central bank governors from 19 countries and the European Union (EU).
- It was founded in 1999 to discuss policy pertaining to the promotion of international financial stability.
- Its first formal summit was held in Washington in 2008.
- It seeks to address issues that go beyond the responsibilities of any one organization.
- Collectively, the G20 economies account for around 90% of the gross world product (GWP), 80% of world trade, two-thirds of the world population, and approximately half of the world land area.
- It doesn’t have a permanent secretariat like other organisations.
- Spain is a permanent guest invitee to every summit but not a member.
- The Summit of G20 Finance Ministers and Central Bank Governors was created as a response -
- To the financial crisis of 2007–2008 and
- To a growing recognition that key emerging countries were not adequately included in the core of global economic discussion and governance.
SDR (Special Drawing Rights):
- It is an international reserve asset comprising the dollar, euro, yen, sterling and yuan, and allocated to IMF members according to their quota
- The SDR is neither a currency nor a claim against IMF assets, but a potential claim against the freely usable currencies of IMF members.
- The SDR interest rate (SDRi) provides the basis for calculating the interest rate charged to member countries when they borrow from the IMF and paid to members for their remunerated creditor positions in the IMF.
- Status of SDR of some countries:
- India has 13,114 million SDRs on account of its 2.76% quota while the US has 82,994 million SDRs due to its 17.45% quota.
- China with a 6.41% quota has 30,483 million SDRs at the IMF.
- One SDR is currently valued at $1.38.
Debt Service Suspension Initiative:
- In April 2020, the World Bank’s Development Committee, IMF and the G20 Finance Ministers endorsed the Debt Service Suspension Initiative to help the poorest countries manage the severe impact of the COVID-19 pandemic.
- It allows poor countries to concentrate their resources on fighting the pandemic and safeguarding the lives and livelihoods of millions of the most vulnerable people.
- The IMF and the World Bank are supporting the implementation of the DSSI—by monitoring spending, enhancing public debt transparency, and ensuring prudent borrowing.
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