It’s hard to imagine, but Canada has just secretly enriched itself with a whopping $19 billion.
In fact, last August, due to the COVID-19 crisis, Canada received this amount from the International Monetary Fund (IMF) in the form of a special asset called Special Drawing Rights (SDRs), which were kept in our international reserves . This is part of an allocation of a record SDR 650 billion USD that has been injected into the global economy to offset the damage caused by the pandemic.
Last week, Minister Chrystia Freeland was in Washington to discuss with fellow G20 finance ministers how to best use this windfall to prop up the global economy, among other things.
SDRs can be used to increase a country’s international reserves or it can be exchanged for real currency to buy goods such as vaccines or personal protective equipment. Developing countries are already using this new financial room to maneuver which they so lacked. In Madagascar, the new SDR will be used to respond to the health crisis and economic recovery; In Senegal, they will be used to strengthen the health system and increase social security.
Canada, on the other hand, does not risk using these new resources, because our international reserves, like those of other prosperous countries, were already supplied before this “manna” fell from the sky. And this is the absurdity of the situation: while all IMF member states received this unprecedented financial aid, only a very small portion went to very poor countries, as allocations were made according to the size of the economies. In fact, the very poorest countries together will get barely $26 billion, which is a little more than a small country like Canada.
With widespread vaccination, Canada is already getting back on its feet. But in low-income countries, investment has plummeted, and an estimated 65 to 75 million more people worldwide have fallen into extreme poverty.
This is why G7 leaders concluded that out of SDR 650 billion, 100 billion should be recycled from the richest countries to the poorest. This should be the minimum. If Canada recycled 25% of the new SDR it initially received, this would unlock up to C$4.7 billion, which is the equivalent of two-thirds of Canada’s aid budget, with no aid budget. becomes poor. The impact on developing countries would be enormous, and in fact cost us proportionately little. For example, if Canada lends its SDRs to other countries without interest, the only direct cost to us would be a small amount of interest paid to the IMF, which would be about $24 million at current rates.
As we just celebrated the International Day for the Eradication of Poverty on 17 October, it is good to remember that we have the opportunity to act rather than pretend. President Macron set the tone by pledging that a fifth of France’s new SDR allocation would be recycled, and this week was followed by the UK, which also pledged 20%. It is Canada’s turn to act.
Eventually, special drawing rights were invented to fund the Marshall Plan in the face of dark days for the global economy. With the pandemic, the world has not seen such dark days for almost a century. The time has come to put the plan into action.
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