SDRs (LINGO Incentives)

The International Monetary Fund (IMF) has the ability to create Special Drawing Rights (SDRs), an international reserve asset exchangeable among member countries. This could be leveraged to finance climate initiatives. Member states would issue new SDRs and allocate the majority to a dedicated climate fund. This fund would convert SDRs into national currencies through central banks to support climate projects, such as renewable energy installations or financial incentives for leaving fossil fuels in the ground, all while avoiding inflation and additional debt.

To enhance affordable financing, proposals from the African Development Bank and the Bridgetown Initiative recommend transferring SDRs as grants to development banks to boost concessional loans and implementing regular SDR reallocations to maintain a steady flow of global reserve liquidity.

Resources :

• World Future Council (2012) Breaking the Climate Finance Funding Deadlock Financing climate protection with the help of Special Drawing Rights. Report, December 2012
• F20 (2023) Funding climate action in the Global South with re-channelled SDRs, Policy Brief, August 2023
• PIIE (2023), The IMF’s special drawing rights alone are no silver bullet for needed climate finance, Blog Post, November 2023
• CEPR (2023) Limiting climate change requires rechannelling of Special Drawing Rights to Multilateral Development Banks, Blog Post, August 2023