The global economy faces serious risks going forward: for example, an estimated $ 2.3 trillion in revenue is expected to be lost in 2022-2025 due to vaccine inequality, most of it in countries in development.
In the United States, the Federal Reserve has lowered interest rates to zero and created more than $ 3.6 trillion since the start of the pandemic. Fiscal policy was also unprecedented, with a federal budget deficit of 15% of GDP last year and forecast at 13.4% for 2021. This is how we got an increase in unemployment benefits, a credit for children’s tax, unprecedented stimulus checks, expanded food stamps, and more, dramatically lowering the poverty rate in the United States.
In June, the World Food Program estimated an increase of 121 million people who have become “acutely food insecure or at high risk” since the start of the pandemic.
But billions of people live in low- and middle-income countries that don’t have the same options. Since poverty is so much more serious, it is more a matter of life and death. In June, the World Food Program estimated an increase of 121 million people who have become “acutely food insecure or at high risk” since the start of the pandemic. This is an âunprecedentedâ increase of 81%; it could kill millions of people, especially children. Malnutrition in children dramatically increases preventable deaths from other causes.
There is no central bank for the world economy, nor a world currency, which can be used to help mobilize the kind of resources for the world that the Federal Reserve and the European Central Bank have created with their own currencies. . But the IMF can do something similar, and it can save millions of lives.
Last month, the Fund issued $ 650 billion in international reserve assets – called Special Drawing Rights (SDRs) – for all IMF member countries.
According to IMF rules, these can be exchanged for hard currencies, such as dollars or euros, by countries in need. SDRs are not loans and should not be repaid; there are no conditions attached to it.
A striking feature of this innovation – which was rolled out during the global recession of 2009 – is that many countries that do not actually convert SDRs into currency still benefit. Just by having more international reserves, they are less likely to face balance of payments crises, fiscal or credit crises, or recessions that worsen when their economies slow down.
These new international reserves also free up other resources in developing countries for essential imports such as vaccines, medicines and food. And they can be exchanged for hard currencies if needed.
But there is politics involved, and it can ruin everything. Steven Mnuchin, Trump’s Secretary of the Treasury, immediately blocked the IMF from issuing SDRs when the Fund’s managing director proposed it in March 2020. Congress can cancel the Treasury, and the House therefore passed a law l last year for the US government to approve “at least SDR 2,000 billion” – worth $ 2.8 trillion – to the Fund.
But Republicans blocked legislation in the Senate. When Biden took office, the new Treasury Department accepted at the IMF just about anything it could approve without a vote from Congress. This is the $ 650 billion the IMF issued last month.
But this $ 650 billion issue was not enough to meet the needs that most of the world faces, in order to save the lives of those who can be.
The US economy also benefits from any issuance of SDRs, as our exports depend on demand from the rest of the global economy. The number of jobs related to US exports lost due to the global recession is estimated at more than 2 million; these will return sooner if the global economy recovers faster.
So members of Congress returned, with legislation in both the House and the Senate, to get the rest of what the House approved last year. It was passed by the House again this year, but the Republican leadership is still blocking it in the Senate.
There is no reason for anyone to make this a partisan issue. There is no budgetary or cost issue for the US government; SDRs are not foreign aid. Supporters of a larger DTS issue included hundreds of economists, former and current heads of state and ministers from all political backgrounds. There is hardly any economist – of any political persuasion – who has said anything against this; this is because there are no significant downside risks. Organizations representing tens of millions of Americans, including large religious organizations such as the United States Conference of Catholic Bishops, have supported the multi-billion dollar issues passed by the United States House of Representatives.
Of course, the United States is politically polarized right now, and this legislation was brought forward by Democrats. But just a few weeks ago, 19 Republican senators, including Minority Leader Mitch McConnell, joined Democrats in passing a $ 1,000 billion infrastructure bill. It’s real money. And former President Trump, who remains the most powerful Republican, urged them to vote no. (Trump never said a word about SDR.)
No senator will face a campaign attack ad campaign next year accusing them of supporting Special Drawing Rights. There must be at least one Republican senator who has the courage to support something that will create jobs in the United States, save lives all over the world, and cost the United States nothing.