finance development-related investments

There is another argument against using SDRs to finance development-related investments. SDRs were created to provide international liquidity in order to overcome short-term balance-of-payments difficulties. If they were to be spent for other purposes, such as for meeting development objectives, the question would inevitably arise as to why such financing could not be made available more effectively through regular budgetary allocations by donor governments or by increasing support to multilateral institutions such as the World Bank or IMF facilities.
Why transfer SDRs instead of providing the funds through the traditional budgetary appropriations for development cooperation? While this is a fair point, using transfers could be justified for the provision of development-related global public goods such as in the area of climate change mitigation.9 Indeed, this would be broadly in line with the original concept of SDRs, notably to provide short-term liquidity in case of a balance-of-payments crisis, which is also a utilization that is linked to a global public good, namely “global financial stability”.
In this context, the issues raised in the negotiations for a post-Kyoto protocol are complex and challenging. Since the main point of divergence between industrialized and developing countries concerns the issue of financing, the possible use of SDRs could constitute an important element of a deal on future climate-change-related financing. Industrialized countries, and possibly emerging-market countries, could commit to making available, temporarily, “their” SDR allocation for climate protection measures, either directly or through the World Bank and the regional development banks.10 If necessary, the donor countries could commit to taking (partly) over the interest charges linked to the use of SDRs (which, in most countries, would require going through their respective budgetary procedures).
One specific proposal is that industrialized countries invest the SDRs in bonds issued by development institutions (such as the World Bank); in this case the donor country would bear the SDR interest service charges, but would receive the interest from the bonds, thus minimizing its budgetary costs.
If the IMF issued SDRs regularly and the major greenhouse gas emitting countries decided to use a part of their allocation for such transfers, this could contribute to a “global green deal” in financing a share of the needed funds for mitigation action. Such a deal could also help trigger a new recovery in the still sluggish world economy, while at the same time ensuring that the recovery focuses on green investments.