Sen. John Kennedy is looking for answers about why the Biden administration supported a plan to provide the International Monetary Fund‘s internal currency to adversaries such as Russia, Iran, and China.
Kennedy, a Louisiana Republican, told the Washington Examiner that not enough attention has been paid to the fact that the administration backed the allocation of $650 billion in special drawing rights through the International Monetary Fund. The SDRs can be exchanged by the recipient countries for U.S. dollars and other major currencies.
Kennedy’s main qualms with last year’s SDR allocation are that U.S. adversaries such as Russia, China, and Iran were among the recipients of the funds and that no congressional approval was needed because of the manner in which the funds were allocated. The senator is now calling for hearings into why the administration greenlit that money and if there are plans for additional disbursements.
Kennedy noted that the allocations came at a time when the United States and European allies were already aware that Putin was massing troops near Ukraine. In March of last year, U.S. European Command raised its awareness level to “potential imminent crisis” in response to the buildup.
“We ought to hold hearings and ask why they’re doing this,” the senator said, adding that he repeatedly questioned Treasury Secretary Janet Yellen on the matter while she was on Capitol Hill. “There is some reason they wanted to do this, this is a gift to Iran, it’s a gift to China.”
MANCHIN JOINS GOP IN OPPOSING SEC CLIMATE DISCLOSURE PROPOSAL
The push behind the new SDRs was to provide poor nations struggling with the fallout of the COVID-19 pandemic relief and to boost global liquidity. An SDR is a form of international reserve asset that countries can exchange for freely usable currencies at a fixed exchange rate. All IMF member countries are given a share of the SDRs.
Kennedy said that doling out the money using SDRs is an inefficient way of providing poor countries with capital because the funds are apportioned based on a country’s contribution to the IMF, and the poorest countries give very little.
Russia received $17 billion of the IMF assets, Iran got some $4.5 billion in the deal, and China received $40 billion in SDRs.
Kennedy called the SDRs a “gift card” that leaders like Russia’s Vladimir Putin can present and redeem for funds.
Yellen has pushed back on opposition to the SDRs by saying that the U.S. would not agree to exchange the SDRs for dollars for countries that are bad actors, such as Iran. Those countries, though, could try to exchange those SDRs in euros, yen, pounds, and the Chinese yuan.
The SDR allocations have come under increased scrutiny since Putin’s invasion of Ukraine. A U.S. official told Reuters last month that the U.S. is working with its partners to stop Russia from benefiting from last year’s allocation.
“The United States is committed to taking all measures to prevent Russia from benefitting from its holdings of IMF SDRs,” the official said. “As a result of sanctions by the United States and our partners, the Russian regime would face significant, even insurmountable, hurdles to use its SDRs.”
Still, some fear that Russia might turn to China to exchange its SDRs for yuan, although Beijing may not see the strategic value in allowing Russia to skirt U.S. and allied sanctions.
“They’re basically stuck with their SDRs, unless China is prepared to come in,” David Andrews, a former IMF official and now a consultant with the Center for Global Development, told Bloomberg. “I can’t really see the incentive for China to do it. It’s one thing to not be taking part in sanctions. It’s another thing to overtly break them.”
When contacted by the Washington Examiner for comment, the Treasury Department pointed to a March letter it sent to Rep. French Hill, an Arkansas Republican. In the letter, assistant Treasury secretary for legislative affairs Jonathan Davidson said the U.S. is committed to preventing Putin benefit from its IMF SDR holdings.
“The United States and our partners comprise the majority of available counterparties in the IMF’s SDR exchange market,” the letter reads. “This coalition will not undertake SDR transactions with Russia. Moreover, even if the Central Bank of Russia were able to acquire key usable currencies—U.S. dollars, euros, yen, or pounds—as a result of an SDR transaction, new sanctions would effectively immobilize those assets, along with Russia’s other foreign exchange reserves in these currencies.”
Last year, Kennedy introduced legislation called the No Dollars for Dictators Act, which would require congressional approval for allocations of SDRs to state sponsors of terrorism and perpetrators of genocide.
“Congress is responsible for stewarding taxpayer money, and this bill would stop the Biden administration from making an end run around the Constitution on behalf of the world’s worst dictators. Oppressive, hostile regimes work to undermine America’s safety and success every day, but the White House shouldn’t be helping them,” said Kennedy last June when he introduced the bill.
Adding to some of the frustration for Republicans like Kennedy is that the amount of last year’s general allocation, $650 billion, is below the threshold that would have triggered the need for congressional approval.
Additionally, the IMF could have instead targeted just the poorest countries, while leaving out countries like China, by designating a “special allocation,” according to the Wall Street Journal, although a special allocation of SDRs would have also required congressional approval.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
The Washington Examiner reached out to the White House about the $650 billion SDR disbursement and about potential future disbursements but did not receive responses.
“I don’t know why the Biden administration persists in giving money to countries that hate us so those countries can have more money to buy weapons and try to kill us,” Kennedy said during the interview. “It has nothing to do with trying to help poorer countries.”
