Questions and Answers on Special Drawing Rights

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The Special Drawing Right (SDR) is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries.
The SDR is based on a basket of international currencies comprising the U.S. dollar, Japanese yen, euro, pound sterling and Chinese Renminbi.
The SDR is not a currency, nor a claim on the IMF, but is potentially a claim on freely usable currencies of IMF members.
The value of the SDR is set daily by the IMF on the basis of fixed currency amounts of the currencies included in the SDR basket and the daily market exchange rates between the currencies included in the SDR basket.
The SDR serves as the unit of account of the IMF and some other international organizations; financial obligations may also be denominated in SDR.

The SDR interest rate is determined weekly on each Friday.
The rate is based on a weighted average of representative interest rates on 3-month debt in the money markets of the five SDR basket currencies (U.S. dollar, Japanese yen, euro, pound sterling, Chinese renminbi).
Technical determination of currency amounts for a new five-year valuation period:
- Currency amounts are set so that on the last day before new currency weights become effective (July 29), the value of the SDR in U.S. dollar terms based on the outgoing weights equals the value under the incoming basket.
- On that same day, the share of each currency in the value of the SDR corresponds to the weight approved by the IMF Executive Board on May 11, 2022, valued at the average exchange rates for the past three-months (May 2 through July 29, 2022).
The Executive Board’s decision of July 29 implements the SDR valuation review by setting the new currency amounts that remain fixed over the new five-year valuation period starting August 1, 2022.

SDRs are only allocated to IMF members that elect to participate in the SDR Department. Currently all members of the IMF are participants in the SDR Department.
SDRs can be held and used by:
- member countries,
- the IMF,
- and certain designated official entities called "prescribed holders".
SDRs cannot be held by private entities or individuals.
Currently there are 20 prescribed holders, including:
- 4 central banks: European Central Bank, Bank of Central African States, Central Bank of West African States, Eastern Caribbean Central Bank;
- 3 intergovernmental monetary institutions: Bank for International Settlements, Latin American Reserve Fund, Arab Monetary Fund;
- 13 development institutions: African Development Bank, African Development Fund, Asian Development Bank, Caribbean Development Bank, Corporación Andina de Fomento, European Bank for Reconstruction and Development, European Investment Bank, Inter-American Development Bank, International Bank for Reconstruction and Development and the International Development Association, Islamic Development Bank, Nordic Investment Bank, International Fund for Agricultural Development.

The IMF has authority under its Articles of Agreement to create unconditional liquidity through "general allocations" of SDRs to participants in its SDR Department in proportion to their quotas in the IMF.
The Articles prescribe that general allocations should:
- meet a long-term global need to supplement existing reserve assets in a manner that will promote the attainment of the IMF's purposes and avoid economic stagnation and deflation, as well as excess demand and inflation;
- have the broad support of SDR Department participants.
A direct benefit of a general SDR allocation is to supplement existing reserve assets to help meet a long-term global need, boosting buffers and bolstering international economic resilience; by helping stabilize vulnerable countries, an SDR allocation can help mitigate risks of economic and social fragility, minimize spillovers, and enhance the stability of the international monetary system.

New members to the Fund receive an SDR allocation upon their participation in the SDR Department.

The general allocation of SDR 456.5 billion (equivalent to about US$650 billion) implemented on August 23, 2021:
- Addresses the long-term global need for reserves, builds confidence, and supports a sustainable and resilient global recovery.
- Benefits all member states and helps emerging market and low-income countries struggling with the impact of the COVID-19 crisis.
- Is by far the largest allocation to date and is cited as a prime example of an international cooperative response to the COVID-19 pandemic.

For more than three decades, the SDR market has functioned purely on a voluntary basis.
Various Fund members and one prescribed SDR holder have agreed to stand ready to buy and sell SDRs on a voluntary basis.
The Fund facilitates transactions between members seeking to sell or buy SDRs and these counterparties to the voluntary arrangements. Participants in the SDR department can also enter into bilateral transactions amongst themselves or with prescribed holders under Fund guidance.
If there are not enough voluntary buyers of SDRs, the IMF can designate members with strong balance of payments positions to provide freely usable currency in exchange for SDRs (the "designation mechanism").
The designation mechanism ensures that a participant can use its SDRs to readily obtain an equivalent amount of currency if needed because of its balance of payments, its reserve position, or developments in its reserves.
The designation mechanism has not been activated since 1987.

The quinquennial (5 yearly) review of the SDR basket and discussions on a potential SDR allocation are separate processes and do not have substantive impact on each other.
The extension of the current SDR valuation basket contributed to prioritizing work during the COVID-19 crisis and allowed a more suitable effectiveness date of a new basket on August 1, 2022, avoiding coincidence with some major markets being closed.
On May 11, 2022, the Board decided to keep the composition of the SDR currency basket unchanged and to update the basket with new currency weights, to become effective for the new five-year valuation period starting August 1, 2022.
The Executive Board’s decision of July 29 is the final step to implement the SDR valuation review by setting the new currency amounts consistent with the May 11 weights.