Toomey, Risch, Kennedy, Hagerty Call on Treasury to Abandon Effort to Use the IMF Currency for Foreign Aid
Raise the alarm over inappropriate use of taxpayer dollars that could benefit state-sponsors of terrorism
Washington, D.C. – U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.), U.S. Senate Foreign Relations Committee Ranking Member Jim Risch (R-Idaho), Senator John Kennedy (R-La.), and Senator Bill Hagerty (R-TN) today urged Treasury Secretary Janet Yellen to withdraw her support for the International Monetary Fund’s (IMF) plan to allocate new Special Drawing Rights (SDRs) without congressional approval. SDRs are backed by IMF member countries’ fiat currencies, the largest component being the American dollar.
In
a letter to Secretary Yellen, the members wrote:
“The proposed allocation of SDRs
would be inappropriate, ineffective, and a wasteful use of taxpayer dollars
that would end up benefiting repressive regimes and state-sponsors of
terrorism. We strongly urge you to abandon your support for this proposal.”
As
the members point out, foreign aid is generally appropriated by Congress—not by
unilateral executive action. Allocating new SDRs would also be an ineffective
method of providing foreign aid to low-income countries, as SDRs
disproportionately benefit G20 countries. Moreover, beneficiaries would include
America’s adversaries, which could take new SDRs and exchange them for U.S.
dollars without conditions.
“In
fact, over two-thirds of any allocation would go to G20 countries, which do not
need assistance, and less than ten percent would reach poor countries…
“An
allocation would also directly benefit repressive regimes around the world,
including U.S. adversaries and state-sponsors of terrorism, since all IMF
members would receive SDRs. That means billions of dollars’ worth of SDRs would
go to China, Russia, Iran, Venezuela, and Syria.”
Read
the full letter here
or below.
March 24, 2021
The
Honorable Janet Yellen
Secretary of the Treasury
Department of the Treasury
1500 Pennsylvania Ave. NW
Washington, DC 20220
Dear
Secretary Yellen,
We
are deeply concerned by your support for a proposal to have the International
Monetary Fund (IMF) allocate new Special Drawing Rights (SDRs), without
congressional approval, to purportedly help poor countries respond to the
COVID-19 pandemic. As you are aware, SDRs are backed by IMF member countries’
fiat currencies, the largest component being the American dollar. The proposed
allocation of SDRs would be inappropriate, ineffective, and a wasteful use of
taxpayer dollars that would end up benefiting repressive regimes and
state-sponsors of terrorism. We strongly urge you to abandon your support for
this proposal.
Under
the IMF’s own rules, general allocations of SDRs should only occur when
necessary to meet a long-term global need for reserve assets. Currently, there
is no such need. While some poor countries may have a need for foreign aid, SDR
allocations are not meant to be used as a back door for providing such aid. The
IMF has other more suitable tools for aiding poor countries. The United States
does as well. But in our system of government, the decision to provide foreign
aid is properly made by Congress through the appropriations process, not by
unilateral executive action.
Not
only would such an SDR allocation be inappropriate under the IMF’s rules, but
some have reportedly suggested that the administration structure a $1 trillion
allocation in a way to avoid the legal requirement to obtain congressional
approval for such an allocation. Under federal law, Congress must approve SDR
allocations unless the U.S. share of an allocation falls below a certain
threshold amount over a five-year period. A $1 trillion allocation in 2021
would require congressional approval under this standard. But splitting this
allocation in two—with $500 billion allocated in 2021 and $500 billion
allocated in 2022—would not. We sincerely hope that the administration would
not resort to such tactics to circumvent congressional approval.
Even
if an allocation of SDRs were appropriate—which it is not—it is an ineffective
method of providing foreign aid to low-income countries. As you noted just last
year, “in such an allocation, all [IMF] members receive SDRs based on their IMF
quotas, so a large share of the money goes to developed countries like the
United States.” In fact, over two-thirds of any allocation would go to G20
countries, which do not need assistance, and less than ten percent would reach
poor countries. There is no rational economic justification for such a poorly
targeted distribution of aid.
An
allocation would also directly benefit repressive regimes around the world,
including U.S. adversaries and state-sponsors of terrorism, since all IMF
members would receive SDRs. That means billions of dollars’ worth of SDRs would
go to China, Russia, Iran, Venezuela, and Syria. These countries would be
entitled to exchange their SDRs for hard currency, such as U.S. dollars or Euros,
and use them for any purpose whatsoever. There are no strings attached or
conditions placed on their use of these funds.
This
inappropriate distribution of foreign aid does not come without costs. To the
contrary, it comes at a permanent cost to the U.S. taxpayer. IMF members can
demand that a fellow member nation exchange SDRs for hard currency. Ultimately,
SDRs can be redeemed from the U.S. government by foreign countries for dollars
in the form of “loans” that do not have to be repaid. These dollars come from
the U.S. government, which would need to issue debt to obtain sufficient
dollars to meet an SDR demand. That debt will need to be repaid by current and
future taxpayers.
For
all of these reasons, we strongly urge you to abandon your support for an
allocation of SDRs.
Sincerely,
Pat
Toomey
U.S. Senator
Ranking Member
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Jim
Risch
U.S. Senator
Ranking Member
U.S. Senate Committee on Foreign Relations
John
Kennedy
Ranking Member, Subcommittee on Economic Policy
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Bill
Hagerty
Ranking Member, Subcommittee on State Department and USAID Management,
International Operations, and Bilateral International Development
U.S. Senate Committee on Foreign Relations
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