Question

Explain why small, poor countries might find the additional Special Drawing Rights (SDR’s) being suggested useful.  You must use a Central Bank T-account in your answer.

Answer 1

The International Monetary Fund (IMF), introduced an international reserve asset named SDR (Special Drawing Rites) on March 24, 1969. Its basic aim is to provide emergency loans to the underdeveloped or poor countries, so that they are able to maintain its currency reserves.

During the global crisis of pandemic, the Additional Special Drawing Rights, SDR's is a tool used for the transfer of surplus reserves to the small and poor countries for their benefits. As the after-effects of COVID-19 are far worst in the poorer/underdeveloped countries than the other developed/rich one.

By issuing of the new SDR's provided by the IMF, the poor countries get the required purchasing power. These SDR's are highly liquid in nature and easily available too, which is need of the hour.

This will help the small and poor countries to control the issues related to health as well as economic slowdown.

Moreover, while usage of this additional SDR's, the Central Banks of the small and poor countries must inspect the financial and monetary functions in the economy through its tool of T-accounts. It evaluates and measure all the assets and liabilities of an economy and reflects its actual financial position.

The usage of T-accounts will bring transparency in the economic system, which will help the proper allocation of SDR's in the required areas. It will also enable a small and poor country to asses its shortcomings and weaknesses and will also enable it to invest more in fields having potential to yield more benefits. Therefore, improving the position of the country on the global platform.