| 27 February 2024, Tuesday |

U.S. Republicans urge Yellen to block Russia from exchanging IMF reserves

U.S. Treasury Secretary Janet Yellen must prevent Russia from trading the $17 billion in International Monetary Fund reserves it got last year, and she must oppose any subsequent IMF allocations, according to Republican senators in the United States.

In a letter to Yellen, the 41 legislators said that the $650 billion distribution of Special Drawing Rights to IMF members undercut earlier sanctions against Russia even before Moscow invaded Ukraine.

“This week’s aggressive invasion of Ukraine underscores why the IMF should never have authorized its current $650 billion general distribution of SDRs in August 2021,” the legislators said in a Feb. 28 letter.

All IMF members received SDRs – backed by dollars, euros, yen, sterling and yuan – in proportion to their shareholding in the Fund in the distribution aimed at helping poorer countries fight the COVID-19 pandemic. But to spend the $17 billion in SDRs it received, Russia would need to find a partner country willing to exchange them for underlying currencies in the form of an interest-bearing loan.

The United States and Western allies have imposed sanctions on Russia’s central bank aimed at neutralizing Moscow’s $640 billion reserves, which would make such a transaction difficult and subject the counterparty to sanctions as well.

But the lawmakers used the invasion to repeat their longstanding criticism of the SDR allocation, which also provided SDRs to China and Iran. They said Yellen should press IMF members to formally agree not to exchange Russia’s SDRs, and should oppose further allocations because they would grant more assets to Moscow.

“We cannot allow these reserve assets to help the regime withstand the latest sanctions announced by the President, let alone offer additional billions through further allocations,” wrote the lawmakers, led by Representative French Hill of Arkansas and Senator Bill Hagerty of Tennessee.

The lawmakers also said that Yellen and U.S. allies must plan for contingencies to block a bailout if an economically weakened Russia is forced to turn to the IMF for future loans.

“As the largest shareholder of the IMF, the United States has a responsibility to ensure that the Fund is not misused to support Russia’s warmongering in Ukraine,” the lawmakers wrote.

A U.S. Treasury spokesperson did not immediately respond to a request for comment.

But Mark Sobel, a former Treasury and IMF official, said that $17 billion in SDRs was a pittance compared to Russia’s $630 billion in foreign currency reserves, most of which are now locked up by Western sanctions against Russia’s central bank.

“I think Russia’s SDRs are fairly irrelevant and meaningless in the bigger scheme of things,” said Sobel, now U.S. chairman of the Official Monetary and Financial Institutions Forum think tank.

“China and Russia have little use for their SDRs,” while Iran “doesn’t appear to have touched its 2021 SDR allocation” he added.

  • Reuters