Republicans urge Yellen to block Russia from exchanging IMF reserves

WASHINGTON: US Treasury Secretary Janet Yellen must block Russia from exchanging the $17 billion in International Monetary Fund reserves it received last year and oppose any further such IMF allocations, US Republican lawmakers said.

The 41 lawmakers said in a letter to Yellen that the $650 billion allocation of Special Drawing Rights to IMF members had undermined previous sanctions on Russia even before it invaded Ukraine.

“The hostile invasion of Ukraine this week demonstrates why the IMF should never have approved its latest $650 billion general allocation of SDRs in August 2021,” the lawmakers said in the letter dated Feb. 28.

All IMF members received SDRs - backed by dollars, euros, yen, sterling and yuan - in proportion to their shareholding in the Fund in the distribution aimed at helping poorer countries fight the COVID-19 pandemic. But to spend the $17 billion in SDRs it received, Russia would need to find a partner country willing to exchange them for underlying currencies in the form of an interest-bearing loan.

The United States and Western allies have imposed sanctions on Russia’s central bank aimed at neutralizing Moscow’s $640 billion reserves, which would make such a transaction difficult and subject the counterparty to sanctions as well.

But the lawmakers used the invasion to repeat their longstanding criticism of the SDR allocation, which also provided SDRs to China and Iran. They said Yellen should press IMF members to formally agree not to exchange Russia’s SDRs, and should oppose further allocations because they would grant more assets to Moscow.

“We cannot allow these reserve assets to help the regime withstand the latest sanctions announced by the President, let alone offer additional billions through further allocations,” wrote the lawmakers, led by Representative French Hill of Arkansas and Senator Bill Hagerty of Tennessee.

The lawmakers also said that Yellen and U.S. allies must plan for contingencies to block a bailout if an economically weakened Russia is forced to turn to the IMF for future loans.

“As the largest shareholder of the IMF, the United States has a responsibility to ensure that the Fund is not misused to support Russia’s warmongering in Ukraine,” the lawmakers wrote. A U.S. Treasury spokesperson did not immediately respond to a request for comment.

But Mark Sobel, a former Treasury and IMF official, said that $17 billion in SDRs was a pittance compared to Russia’s $630 billion in foreign currency reserves, most of which are now locked up by Western sanctions against Russia’s central bank.

“I think Russia’s SDRs are fairly irrelevant and meaningless in the bigger scheme of things,” said Sobel, now U.S. chairman of the Official Monetary and Financial Institutions Forum think tank.