Treasury Secretary Janet Yellen pushed back against concerns over possible U.S. contributions to an International Monetary Fund (IMF) pool of reserves, aimed in part at helping developing countries struggling with the pandemic.

“It is especially important to channel resources to the world’s poorest countries,” Yellen told the House Financial Services Committee on Tuesday.

The IMF hopes to allocate $650 billion in new Special Drawing Rights, which are international reserve assets that derive their value based on a basket of five currencies (U.S. dollar, Euro, Chinese yuan, Japanese yen, and British pound sterling).

The IMF allocates these SDRs to all member countries at certain quotas, determined using a formula that accounts for variables like GDP and openness.

SDRs are not currencies themselves, but can be bought from and sold to other participating members. Countries can then exchange SDR holdings into any of the five currencies used to derive the SDR’s value.

‘It’s essentially a wash’

But some Republicans on Capitol Hill are calling on the Treasury to pull its support of any new allocations, taking issue with the idea of China and Russia receiving more SDRs.

“There is no rational economic justification for such a poorly targeted distribution of aid,” four GOP senators wrote to Yellen on Tuesday.

Yellen clarified that countries receiving allocations, including China, will “recycle” some SDRs into a poverty reduction trust aimed at subsidizing lending to low-income countries most in need.

In a heated exchange on Wednesday, Republican Sen. John Kennedy of Louisiana asked Yellen how the U.S. government would pay for the SDR infusion.

"You don't have the money sitting in a checking account," Kennedy said. "They're going to redeem those SDRs — not just the poor countries but also China."

Yellen insisted that any injection into the IMF’s reserves of SDRs would not cost U.S. taxpayers more money. She clarified that if the U.S. were to provide hard U.S. dollars to countries redeeming their SDRs, the government could support those operations by issuing debt in the form of U.S. Treasuries.

But she pointed out that the cost would be covered since the IMF pays interest to “creditors” (countries that hold SDRs in excess of the IMF’s allotment to that country).

“There is no money to be paid back — it doesn’t matter,” Yellen said despite Kennedy’s interruptions. “The interest that we earn on any SDR holdings offsets the cost of issuing Treasuries and it's essentially a wash.”

The law allows the Treasury to authorize an SDR allocation up to a certain limit without Congressional approval, as long as the Treasury provides 90-day notice. The Peterson Institute for International Economics last year estimated that limit to be $649 billion, meaning that an allotment above that amount would likely require explicit congressional approval.

IMF Managing Director Kristalina Georgieva said the allocation would “support the global recovery from the COVID-19 crisis.”

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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