IMF Could Borrow in Markets to Boost Resources, Staff Suggests

The International Monetary Fund could consider market borrowing as part of efforts to build a global liquidity safety net, a staff report suggested.

Such a mechanism could allow the Washington-based IMF to quickly increase lending resources without leaning on its 187 member countries, according to the report. That would give the institution the means to scale up its response to global liquidity needs in times of crisis, it said.

“Establishing the modalities for the Fund to borrow from the markets at short notice to supplement its existing resources could be worth exploring,” IMF staff wrote in the report, which focuses on strengthening the international monetary system. “This could have the added advantage of offering a relative safe haven asset during times of global market stress.”

While the World Bank sells bonds in the market to raise the money for loans, the IMF can’t, depending instead on resources provided by member countries. Direct access to funding could help the IMF offer short-term liquidity access during crises as a complement to central bank swaps, among other possibilities.

Other proposals in the report include regular injections of liquidity in the global system, following the $250 billion pumped in at the request of the Group of 20 in 2009.

It also suggested expanding the currency basket used by the IMF, the so-called Special Drawing Rights, to “the most widely used emerging market currencies.”

This issue is on the G-20 agenda, and France’s President Nicolas Sarkozy and Finance Minister Christine Lagarde said last week that work should start on including the yuan in the basket.

To contact the reporter on this story: Sandrine Rastello in Paris at srastello@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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