The International Monetary Fund (IMF) has approved a general allocation of Special Drawing Rights (SDRs) to $250 billion to provide liquidity to the global economic system by supplementing Fund's member countries' foreign exchange reserves.

The formal approval of the IMF's board of governors came after the Fund's executive board backed the SDR allocations almost a month ago, following the G20 leaders' commitment during their April summit to boost global liquidity. (See: IMF turns borrower; signs deal with Japan, Canada and Norway)

The SDR allocation will be made on 28 August 2009 to its 186 members in proportion to their existing quotas in the Fund, based on their relative size in the global economy. Each participating country will get approximately 74 per cent of its quota through the allocation.

Total allocations will reach approximately $283 billion from the current level of $33 billion.

The IMF said that around $100 billion will go to the emerging markets and developing countries, of which low-income countries will get over $18 billion.

Additionally, IMF will provide for special one-time SDRs on 9 September 2009, as per last week's Fourth Amendment raising the members' cumulative SDR quota using a benchmark ratio. The total of special SDRs would amount to $33 billion.

The special allocation will make the allocation of SDRs more equitable and correct for the fact that countries that joined IMF after 1981, which is more than one-fifth of the current membership, had never received an SDR allocation. The Fourth Amendment which required three-fifths of the membership with 85 per cent votes to pass, got the approval following the recent consent by the US.

The SDR is an international reserve asset, created by the IMF in 1969 to supplement the official reserves of its member countries which can be exchanged for freely usable currencies. Its value is based on a basket of four key international currencies; US dollar, euro, Japanese yen and pound sterling. The currency basket and weight of each currency are reviewed every five years. (1 US dollar=0.641SDR)

The newly allocated SDRs will be counted towards the member's reserve assets which they can sell to other members in exchange for hard currency for various needs. Members can also buy more SDRs as a means of reallocating their reserves

Total SDR allocations by the Fund, both general and special combined, will reach $316 billion (SDR 204 billion).

India would receive approximately $4.78 billion, based on its quota (See: India to get SDRs worth $4.78 billion as IMF boosts member reserves).