AfDB and IDB applaud IMF approval of hybrid capital for Special Drawing Rights channeling

The innovative SDR-hybrid-capital solution, proposed jointly by the AfDB and IDB, aligns with the IMF's statistical criteria for international reserve-asset status.

Today, the African Development Bank Group (AfDB) and the Inter-American Development Bank (IDB) expressed their satisfaction with the International Monetary Fund's (IMF) Executive Board's decision to approve hybrid capital as an eligible instrument for channeling Special Drawing Rights (SDRs).

The innovative SDR-hybrid-capital solution, proposed jointly by the AfDB and IDB, aligns with the IMF's statistical criteria for international reserve-asset status. This pioneering approach allows countries lending their SDRs to continue accounting for them as reserves, in accordance with IMF regulations.

This breakthrough SDR-based hybrid capital channeling solution is poised to unlock new lending opportunities by Multilateral Development Banks (MDBs) to address pressing global challenges, including climate change and food security. By leveraging this new instrument, MDBs, including the AfDB and IDB, can lend at least US$4 for every US$1 equivalent of SDRs, enabling the financing of crucial development projects.

In an era marked by multiple crises and limited development resources, this innovative financial mechanism offers governments a unique value proposition. The next phase involves securing a minimum of five investors to channel their SDRs through MDBs. The AfDB and IDB are committed to engaging with SDR holders to advance this transformative financial solution.

African Development Bank President, Dr. Akinwumi Adesina, emphasized the significance of this innovative approach in mobilizing development financing efficiently, with a multiplier effect and at no cost to taxpayers, to address Africa's evolving development challenges.

Inter-American Development Bank President, Dr. Ilan Goldfajn, echoed Adesina's sentiments, welcoming the IMF Executive Board's decision. He highlighted the potential of the new SDR-based hybrid-capital instrument to finance sustainable development projects, enhance climate resilience, alleviate poverty, and foster inclusive growth across the regions served by the IDB.

The G20 has encouraged MDBs to optimize their balance sheets through financial innovation to expand lending capacity and support countries in addressing urgent development needs. In April, leaders of 10 MDBs underscored their commitment to working more effectively as a system and scaling up their collective impact.

The SDR, an international reserve asset established by the IMF, supplements member countries' official reserves and derives its value from a basket of world currencies. The most recent general allocation of SDRs by the IMF was in 2021, totaling $650 billion, aimed at assisting countries in responding to the COVID-19 pandemic.