The International Monetary Fund (IMF) announced its board of governors approved a $650 billion allocation of IMF Special Drawing Rights to boost global liquidity.

IMF member countries will receive SDRs — the fund’s unit of exchange backed by dollars, euros, yen, sterling and yuan — in proportion with their existing quota shareholdings in the fund.

The IMF’s last SDR distribution was in 2009 when countries received $250 billion in SDR reserves during the global financial crisis.

To spend their SDRs, countries have to exchange them for underlying hard currencies, requiring them to find a willing exchange partner country.

“This is a historic decision – the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis,” said IMF managing director Kristalina Georgieva.

“The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy.

“It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis.”

The general allocation of SDRs will become effective on August 23, 2021.

The newly created SDRs will be credited to IMF member countries in proportion to their existing quotas in the Fund.

About $275 billion of the new allocation will go to emerging markets and developing countries, including low-income countries.

“We will also continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth,” said Georgieva.

The move was welcomes by German Finance Minister Olaf Scholz as “unprecedented in history.”

Scholz said: “In particular, emerging and developing countries will be given a new boost in combating the economic consequences of the coronavirus pandemic.”

The IMF added: “One key option is for members that have strong external positions to voluntarily channel part of their SDRs to scale up lending for low-income countries through the IMF’s Poverty Reduction and Growth Trust (PRGT).

“Concessional support through the PRGT is currently interest free.

“The IMF is also exploring other options to help poorer and more vulnerable countries in their recovery efforts.

“A new Resilience and Sustainability Trust could be considered to facilitate more resilient and sustainable growth in the medium term.”