Special Drawing Rights
Highlights of this section:
The Special Drawing Right (SDR) is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries.
The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organizations.
In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organizations.
The value of the SDR is based on a basket of key international currencies—the euro, Japanese yen, pound sterling, and U.S. dollar. The U.S. dollar-value of the SDR is posted daily on the IMF’s website. The basket composition is reviewed every five years by the Executive Board to ensure that it reflects the relative importance of currencies in the world’s trading and financial systems.
The SDR interest rate provides the basis for calculating the interest charged to members on regular (nonconcessional) IMF loans, the interest paid and charged to members on their SDR holdings, and the interest paid to members on a portion of their quota subscriptions. The SDR interest rate is determined weekly and is based on a weighted average of representative interest rates on short-term debt in the money markets of the SDR basket currencies.
Under its Articles of Agreement, the IMF may allocate SDRs to members in proportion to their IMF quotas, providing each member with a costless asset. However, if a member’s SDR holdings rise above its allocation, it earns interest on the excess; conversely, if it holds fewer SDRs than allocated, it pays interest on the shortfall.
There are two kinds of allocations:
General allocations of SDRs. General allocations have to be based on a long-term global need to supplement existing reserve assets. Decisions to allocate SDRs have been made three times: in 1970-72, for SDR 9.3 billion; in 1979–81, for SDR 12.1 billion; and in August 2009, for an amount of SDR 161.2 billion.
Special allocations of SDRs. A special one-time allocation of SDRs through the Fourth Amendment of the Articles of Agreement was implemented in September 2009. The purpose of this special allocation was to enable all members of the IMF to participate in the SDR system on an equitable basis and correct for the fact that countries that joined the Fund after 1981—more than one-fifth of the current IMF membership—had never received an SDR allocation.
With the general SDR allocation of August 2009 and the special allocation of Setember 2009, the amount of SDRs increased from SDR 21.4 billion to SDR 204.1 billion (currently equivalent to about $317 billion).