George Soros, billionaire investor and philanthropist, proposed Thursday that the International Monetary Fund should serve as financier for green projects in developing nations to help battle climate change. Developing countries have criticized any climate agreement that would impose emissions cuts without assistance from developed nations. Soros’ proposal would tap the special drawing rights IMF members receive when they deposit money. Current SDRs are worth a total of $283 billion, over half of which are held by the world’s 15 largest economies.
Soros would have the IMF loan $100 billion in SDRs to developing countries to spur green development. Special drawing rights are a weighted basket of the four major reserve currencies—the dollar, the euro, the pound, and the yen—and they are typically used as a flexible way to manage their reserves, said professor of finance Arvind Krishnamurthy. In the face of the global financial crisis, the IMF raised their quota above the ususal $30-50 billion, Krishnamurthy said. The additional SDRs were meant to provide an additional source of liquidity for troubled economies. Soros’ proposal would move SDRs and the IMF itself in an entirely different direction.
“The institution is designed to lend to countries that are suffering financial problems,” Krishnamurthy said. “I’m not sure anybody there knows how to assess green projects.”
While the IMF may not be the ideal vehicle for such a task, many have praised Soros’ plan for its innovative approach. Over $100 billion in SDRs lie dormant in reserve accounts, according to Soros, and are fully backed by the IMF’s gold reserves. Furthermore, the IMF’s mission has evolved over the years to include providing developing countries with more than just fiscal stability. Indeed, the IMF describes this transition in their own words.
How to finance green projects in the developing world has stymied climate agreement talks. If the IMF were to commit $100 billion toward the cause, it would not be enough for a final solution. But it may help break the diplomatic logjam. Developed nations have already recorded on their balance sheets the money sent to the IMF—there would be no need to find $100 billion in already stretched national budgets. And once the world economy rises out of the recession, countries may be more willing to support a green development fund.
“I can understand politically why Soros is doing this,” said Krishnamurthy. “There’s money that’s not being used currently. It’s pretty much all developed country money. I can see the argument for why you should make developed countries pay for the greening of developing countries.”
While Soros has not released any nitty-gritty details, one could envision a partnership between the IMF and the World Bank. “The World Bank has seemed like the more logical [choice], because they’re traditionally the one more involved in project funding,” Krishnamurthy said. “Their project funding historically is development, so you would be placing a different objective on them. But that seems closer to their purview. It’s easy to imagine the World Bank being changed to do this.”