SDRs, interest and the aid link: further analysis

Abstract

In a recent article, John Williamson advocated a monetary reform package that includes both a development assistance link and a competitive interest rate on SDRs. The present note considers explicitly the manner in which the net transfer of resources for development would decline over time with a link under the normal net use procedure for assessing interest and the modified procedure that Williamson proposes. The authors examine the implications of these two procedures. They argue that interest payments by LDCs on their use of SDRs allocated under an aid link could be subsidised to increase the development assistance content of the link without impairing the relative attractiveness of the SDR as a reserve asset. JEL: E42, E43, F35

Keywords

• SDR
• special drawing right
• interest payments
• less developed countries
• aid link