DUBAI (Reuters) -Japan and France said on Monday they will support the African Development Bank (AfDB) and Inter-American Development Bank’s (IDB) plan to leverage IMF Special Drawing Rights for climate and development.

SDRs are rainy day foreign exchange reserves held at the International Monetary Fund, backed by dollars, euros, yen, sterling and yuan.

The IMF created a $650 billion allocation of new SDRs in 2021 in response to COVID-19 and said in June it had on-lent $100 billion of SDRs to low income countries at below-market rates.

Multilateral development banks (MDBs) say they can bolster climate finance in developing markets by leveraging SDRs.

“The MDBs can multiply by at least four times the SDRs allocated to them,” AfDB President Akinwumi Adesina said during a roundtable at the COP28 climate conference in Dubai where Japan and France expressed their support.

He added that five countries would need to re-channel their SDRs to the AfDB, which is also planning to issue a hybrid capital note, and other development lenders to make the proposal work.

“Japan… will be accelerating its best efforts to make a contribution to the proposed hybrid capital in the foreseeable future,” Tomoyoshi Yahagi, the deputy director general of Japan’s Ministry of Finance, said. “We are now in the process of clarifying the details.”

France cannot reallocate its SDRs due to European regulations, but will “issue a guarantee” via a “liquidity support agreement” that will backstop the SDR on-lending, French Treasury director general Emmanuel Moulin said by video message.

Spain will explore supporting the proposal, its deputy prime minister Nadia Calvino said, while Britain will examine backing the liquidity support facility, its development minister Andrew Mitchell added.

The IMF executive board will also need to approve the SDR on-lending, which IMF staff will ask it to consider doing “in the next several months,” IMF deputy managing director Bo Li said.

“If this initiative by the AfDB and the IDB succeeds, we’ll have taken something that was gathering dust,” Rockefeller Foundation Vice President Eric Pelofsky, who chaired the roundtable, told Reuters.

“Were AfDB to get $5 billion of SDRs, we would hope to have a $20 billion increase in lending and that’s a big deal.”

(Reporting by Rachel Savage and William James; editing by Simon Jessop)

FILE PHOTO: A person walks past a “#COP28” sign in Abu Dhabi, United Arab Emirates, October 1, 2023. REUTERS/Amr Alfiky/File Photo