IMF Mulls Fed-Like Program to Get Dollars to More Economies

Bloomberg
Kristalina Georgieva Bloomberg | James Alexander Michie

Kristalina Georgieva Photographer: Jason Alden/Bloomberg

The International Monetary Fund may launch a new program to help address the global shortage of dollars, providing a backup to the Federal Reserve’s campaign to keep greenbacks flowing around the world economy.

IMF Managing Director Kristalina Georgieva is preparing to offer short-term dollar loans to countries that lack enough Treasuries to participate in a Fed program that enables foreign central banks to temporarily exchange U.S. debt for dollars.

The initiative has the support of the U.S. Treasury and may be launched within weeks, according to people familiar with the matter. The U.S. is the fund’s largest shareholder. The IMF next week is scheduled to hold virtual meetings of members at a time when more than 90 countries have already asked for its assistance in shielding their economies from the coronavirus and global recession.

“Our board is going to review a proposal in the next days on creating a short-term liquidity line that is exactly targeted to countries with strong fundamentals, strong macroeconomic fundamentals, that may be experiencing short-term liquidity constraints,” Georgieva said in an online briefing for reporters on Friday.

“We’re short of one instrument to provide short-term liquidity to countries that are basically strong but find themselves in a tight place,” she said, noting that Indonesia was among countries urging the IMF to look into additional ways to help with liquidity in emerging markets.

A spokesman for the IMF declined to comment, while a Treasury spokeswoman didn’t respond to a request for comment.

Dollar Rush

The coronavirus prompted a worldwide rush into dollars by wreaking havoc on a global economy that is heavily dependent on the greenback as its linchpin and relies on it as a haven at times of stress. Georgieva warned on April 3 that the world recession is “way worse than the global financial crisis.”

Emerging-market borrowers who tend to rely on the IMF for aid are particularly at risk of the lack of dollars. Encouraged by low U.S. interest rates, they’ve loaded up on dollar-denominated debt in recent years. They now face a squeeze as their exports plummet, with economies shutting down worldwide to combat the pandemic.

A significantly stronger dollar can also hurt the U.S. by tightening financial conditions and making American exports more expensive on world markets.

Georgieva has repeatedly touted the IMF’s readiness to deploy its $1 trillionlending capacity to fight a virus it initially failed to identify as the massive threat to global growth it now poses.

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Source: Saleha Mohsin and Eric Martin | Bloomberg

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