The Financial Cost of Using Special Drawing Rights: Implications of Higher Interest Rates

By Neil Shenai, Nicolas End, Jakree Koosakul, Ayah Said

September 15, 2023

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Neil Shenai, Nicolas End, Jakree Koosakul, and Ayah Said. The Financial Cost of Using Special Drawing Rights: Implications of Higher Interest Rates, (USA: International Monetary Fund, 2023) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Since the August 2021 SDR allocation, the SDR interest rate has risen about 390 basis points through end-June 2023. This paper analyzes the impact of higher SDR interest rates on IMF members with negative net SDR Department positions. To do so, it constructs SDR forward curves at different points in time, from which the expected cost of servicing SDR obligations can be compared. Results show that the expected path of the SDR interest rate has shifted significantly upward since the 2021 allocation. Expected costs of charges (interest) in net present value terms are estimated to have more than tripled, while the grant element of SDRs has fallen to just below the IMF’s concessionality threshold. Despite this increase in cost, IMF members’ capacity to service SDR obligations remains generally adequate in both baseline and stress scenarios, though a few countries will need to carefully manage the rise in interest costs. Decisions to convert SDRs should consider interest rate risks, among other country-specific factors.

Subject: Currencies, Discount rates, Financial services, Freely usable currencies, Money, SDR interest rate, Yield curve

Keywords: Concessionality threshold, Currencies, Discount rates, Forward curve, Freely usable currencies, Global, Grant element of SDRs, IMF working paper 23/193, Nelson-Siegel-Svensson model, SDR conversion, SDR forward curves, SDR interest rate, SDRs, Service SDR obligation, Stress testing, Yield curve

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/193
Stock No:

WPIEA2023193
ISBN:

9798400253799
ISSN:

1018-5941

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