Carbon Credit Watch

IMF Proposes $100 Billion ‘Green Fund’

(January 30, 2010) The IMF won’t allow its climate change plans to be sidetracked by a lack of scientific consensus or domestic political will.

Climate change seems to have fallen from the top of the agenda at Davos this year, perhaps in reaction to what some people here are calling the debacle in December at Copenhagen. But it hasn’t been forgotten.

The International Monetary Fund has been busy with an idea that will give it a central role in the issue, in which up to now it has been a peripheral player. The idea is for a $100 billion green fund to finance low carbon development in the world’s poorer countries.

How will it be paid for? According to Dominique Strauss-Kahn, the IMF managing director, who made the proposal public Saturday, the capital will come from Special Drawing Rights – the IMF’s own currency — held by world’s central banks.

The idea appears to be uncannily similar to that proposed by financier George Soros around the time of the Copenhagen meeting -– though the IMF boss didn’t give him a name check.

SDRs were first created and issued to IMF members in 1969 in an era of a dollar shortage, where central banks couldn’t find enough dollars and gold for their reserves. Now, after a new issue last year, the amount held in central banks around the world exceeds $300 billion.

Mr. Strauss-Kahn described the fund as an “out-of-the-box” idea and said the fund would flesh out more detail in about two weeks.

The idea seems to be this: The central banks of developed countries would inject capital into the fund using some of their SDR allocations. The fund would then issue bonds to investors, including sovereign wealth funds that would be backed by the green fund’s capital.

The fund would then use that money to make grants and low-cost loans to developing countries to finance low-carbon growth.

Meanwhile, the interest costs of the bonds would be financed by the interest payments that the central banks would pay on the SDRs in the fund. This would make but a small dent in central bank profits.

The fund would need cooperation from central banks and a change in the IMF rule book that would need agreement from members.

Some central banks might not be happy with the idea. They would be joined by those who have always considered the SDR as “funny money” that fuels global inflation.

Stephen Fidler, Wall Street Journal, January 30, 2010

Categories: Carbon Credit Watch

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