SDR News; The Lebanese government has decided to exchange SDRs that it had previously received. This move is part of the country’s efforts to build a new currency. It is also a step in its pursuit of a VTA with Russia. Another potential partner for the VTA is Oman.
Russia would receive an allocation
The International Monetary Fund allocated a massive amount of Special Drawing Rights (SDRs) to the world last year. These currencies are used to make transactions with other member countries. They are not real money, but can be exchanged for dollars, euros or yuan.
But in the wake of the invasion of Ukraine, there has been increased scrutiny over SDR allocations. Many members of the Trump administration and the Congress are arguing against the IMF’s recent allocation.
The IMF has a very sensitive position. It is currently channeling SDRs from wealthier member nations to the developing world. While this is a positive development, there are concerns about how these transfers will be tracked.
A major reason for the criticism is the lack of transparency in these transactions. This lack of transparency has created harmful speculation.
Another problem is that it is not clear how Russia can use SDRs. If Russia were to use these assets, it would need to find a country that is willing to exchange SDRs for hard currency. Due to the large number of sanctions against Russia, finding a partner that is willing to make such a transaction is unlikely.
Lebanese government exchanges SDRs from previous allocations
The Lebanese government is considering how to use its Special Drawing Rights (SDR) allocations. These are supplementary foreign exchange reserve assets held by member countries of the International Monetary Fund (IMF). A new wave of SDRs is expected to be issued in August 2021.
Previously, Lebanon engaged in negotiations with the IMF. This led to an agreement that included reforms to the country’s banking sector and transparency mechanisms. However, there have been disagreements over how to monitor the effects of the program.
As part of the agreement, the Lebanese government will exchange SDRs from previous allotments. While the exchange will be unconditional, it is unclear whether the new allocations will be used to address the country’s needs or simply be kept in reserve for future use.
The current caretaker government has said that the allocations are intended to help families living in poverty through ration cards. Some economists doubt whether the funds can be properly used.
One key question is whether the Lebanese parliament can act on the reforms needed to address the country’s fiscal, monetary, and social crisis. A credible macro-financial stability strategy is essential, along with a debt restructuring plan.
Banxico SDR allocation to $7 billion in hard currency to the Mexican government
The announcement that the Mexican government has received a Special Drawing Right (SDR) allocation of $7 billion in hard currency is quite a feat. This allocation is the largest ever given to a single nation. Not only does it make a splash, but it also has the potential to provide a boost to the global economy.
SDRs are not foreign aid; instead, they are an asset that a country can use to stimulate the economy or fight a pandemic. Many countries are now transferring SDR equivalent amounts to their government budgets.
One of the most significant benefits of the SDR is that it does not impose any additional cost on the recipient. Rather, it supplements the country’s foreign exchange reserves and provides liquidity support to struggling nations.
Aside from the obvious reason that a country receives an SDR allocation, the world is also witnessing a plethora of other SDR related events. Some countries are cashing in on the opportunity to buy back their foreign debt; others are using it to pay down their public debt; and still others are utilizing the SDR as a way to boost resilience in the face of financial volatility.
Oman may be a prospective or a new VTA partner
In recent years, India and Oman have made significant investments in each other’s economies. This reflects the deep friendship of the two nations. There are many opportunities for cooperation, particularly in the energy and mining sectors. It is not difficult to imagine a future VTA relationship.
The two countries will also hold high-profile defence engagements in February, with visits by the Chief of the Royal Air Force and the Chief of the Royal Navy. These are followed by the 10th JMCC, which will provide a roadmap for strengthening defense ties.
Oman has been an important anchor for India’s strategic interests in the region. Its neutral, pragmatist foreign policy has demonstrated its ability to navigate its way around its enemies.
One of the key pillars of the India-Oman strategic partnership is defence. During the recent visit of Indian Defense Minister Manohar Parrikar, the two countries signed a series of pacts in this area. Some of these agreements will involve a purchase of Indian small arms systems.