The case for printing $2 trillion to save the planet
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Illustration: Aïda Amer/Axios
The biggest idea to come out of the Summit for a New Global Financing Pact, which was held in Paris on Thursday and Friday, is that the International Monetary Fund should simply create trillions of dollars — and then hand it out to every country in the world.
Why it matters: Rich and middle-income countries wouldn't be able to use the money — but poor countries could. Such an addition to their foreign reserves would have the potential to be transformative, not only to domestic economies but also for the global climate.
The big picture: Because the IMF's shareholders are governments, they are uniquely capable of creating money — and specifically special drawing rights, or SDRs, are the closest thing there is to an international currency.
Flashback: There's a recent precedent for this. The IMF allocated relatively modest quantities of SDRs to its member nations in 1970-72, in 1979-81, and in 2009. Then in 2021, there was a huge $650 billion allocation that proved astonishingly successful.
- Poor and middle-income countries used the windfall for debt relief and to fund government spending.
- Rich countries "rechanneled" some (but not much) of their allocation to poor countries.
- The U.S. swapped some of its dollars for SDRs and is now being paid interest on those SDRs.
- As the U.S. Treasury said in 2021: "An SDR allocation will increase confidence and liquidity needed to promote a global recovery that benefits the American worker and U.S. economic growth."
By the numbers: To give an idea of how big a deal the SDR issuance was, the simultaneous Debt Service Suspension Initiative allowed certain highly indebted poor countries to suspend interest on $6.9 billion of debt for two years.
- Those same countries received $26.3 billion in new SDRs that they could spend as they liked.
Between the lines: To avoid the almost impossible task of trying to get an SDR allocation through a skeptical Congress, the last allocation was capped at $650 billion, which is roughly the maximum allowable without congressional approval.
- New SDR allocations would therefore probably come in annual installments of $500 billion or so, as Barbados prime minister Mia Mottley has proposed.
- That kind of large and predictable flow of funds would allow the world's poorest countries — countries that can't print trillions of dollars through quantitative easing — to tackle poverty and climate change at the same time.
- Given that the developing world needs about $4 trillion per year in new investment, substantial annual SDR allocations are one of the few interventions that actually move the needle.
What they're saying: “The world wants the IMF to do this again," says the Center for Economic and Policy Research's Mark Weisbrot. "It’s only the U.S. Treasury Department that is holding it up.”
Driving the news: The other big news coming out of Paris was the announcement of a debt restructuring deal with Zambia on about $6.3 billion of bilateral debt — a deal three years in the making and fraught with geopolitical implications.
- Under the deal, the face value of that debt is not reduced at all. Meanwhile, just by being a member of the IMF, Zambia received more than $1.3 billion as part of the 2021 SDR allocation.
The bottom line: Don't hold your breath. The U.S. Treasury — which has veto power — is still opposed, and in any event, Treasury Secretary Janet Yellen has no way of binding her successors to approve annual $500 billion allocations. Still, the rest of the international community mostly seems to have come around to the idea.
