IMF Executive Board Concludes Quinquennial SDR Valuation Review and Determines New Currency Weights for SDR Valuation Basket
IMF News, May 14, 2022
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- Published: May 14, 2022
Summary of decision
- The Executive Board completed the quinquennial review of the method of valuation of the Special Drawing Right (SDR) on May 11, 2022, with the press release dated May 14, 2022.
- The current composition of the SDR currency and interest rate baskets was maintained.
- Updated weights in the SDR valuation basket were approved and will come into effect on August 1, 2022.
- The updated basket implies slightly higher weights for the U.S. dollar and the Chinese renminbi and somewhat lower weights for the British pound, the euro, and the Japanese yen.
- The amounts of each currency will be calculated on July 29, 2022 (the transition date) in accordance with the new weights and will go into effect on August 1, 2022.
Executive Board assessment and guidance
- Directors supported maintaining the current method of valuation of the SDR, including:
- the selection criteria for inclusion in the basket (export criterion and freely usable criterion),
- the methodologies for determining the currency weights and currency amounts in the basket,
- and formalizing the current practice and accepted statistical method of dealing with data gaps.
- Directors agreed to maintain the current composition of the SDR currency and interest rate baskets and approved updated weights.
- Directors encouraged future reviews to include further analysis of the weights used in the formula to ensure they adequately capture the role of currencies in global trade and financial markets.
- On data gaps:
- Directors agreed data gaps for indicators used in the SDR valuation review should be addressed by using available data within the relevant five-year period consistent with past practice.
- Directors recommended continuing to explore availability of alternative variables to minimize data gaps.
- Directors noted developments in trade and financial markets over 2017-2021 and observed:
- The updated weights maintain the same ranking of the initial weights set in the 2015 review.
- Neither the COVID-19 pandemic nor advances in Fintech have had any major impact on the relative role of currencies in the SDR basket so far.
- Continuous monitoring was called for on implications for the SDR valuation framework from fintech and other developments, including potential economic and financial fragmentation and high inflation.
- A few Directors called for monitoring implications of economic sanctions on the valuation framework.
- Operational issues:
- Directors welcomed the update from a survey of SDR users that found most users do not experience significant operational challenges using SDRs or operating in the five SDR basket currencies’ markets.
- The survey identified some remaining operational challenges for the currencies in the basket.
- Directors broadly acknowledged progress in financial market reforms in China, while calling for additional efforts to further open and deepen the onshore renminbi market and for further enhancement of data transparency.
Annex — Key decisions: SDR basket composition and weights
- SDR Basket Composition and Size:
- The value of the SDR will continue to be based on a weighted average of the values of a basket of currencies comprising the U.S. dollar, euro, Chinese renminbi, Japanese yen, and pound sterling.
- Currency Weights in the SDR (and SDR Interest Rate) Basket (with effect from August 1, 2022):
- U.S. dollar 43.38 percent
- Euro 29.31 percent
- Chinese renminbi 12.28 percent
- Japanese yen 7.59 percent
- Pound sterling 7.44 percent
- Transition and publication of currency amounts:
- The amounts of each of the five currencies will be calculated on July 29, 2022 (the transition date) in accordance with the new weights and will go into effect on August 1, 2022.
- The calculation will be made on the basis of the average exchange rates for these currencies over the three months ending on the transition date in such a manner as to ensure that the value of the SDR will be the same on that date under both the revised valuation and present valuation baskets.
- The Fund will project the currency amounts in the revised basket once in May and June and every week in July 2022, and post them on the IMF's website, with projections iterating toward the final effective amounts.
- A press release providing the final currency amounts in the new SDR valuation basket to take effect on August 1, 2022 will be issued by the IMF on July 29, 2022.
- The first SDR exchange rate using the new basket will be posted on August 1, 2022.
- The first SDR interest rate based on the new basket will be determined on August 5, 2022 and will be effective during the week of August 8-12, 2022.
- SDR Interest Rate:
- The SDR interest rate will continue to be determined as a weighted average of the interest rates on short-term financial instruments in the markets of the currencies comprising the SDR basket.
Forward timetable and next review
- Directors agreed with the Managing Director’s proposal for the next SDR review to take place on a five-year basis, to be concluded before end-July 2027.
IMF Executive Board Concludes Quinquennial SDR Valuation Review and Determines New Currency Weights for SDR Valuation Basket — Press Release No. 22/153, May 14, 2022