SDR Valuation Review: Questions and Answers

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The review is the IMF Executive Board’s regular quinquennial review of the method of valuation of the basket of currencies that make up the Special Drawing Rights (SDR).
The review covers:
- The composition and weighting of the SDR currency basket.
- The financial instruments used to determine the SDR interest rate.
The review ensures that the currencies in the SDR basket, and their corresponding weights, reflect the importance of these currencies in the world’s trading and financial system.
The review was delayed by about a year to prioritize work during the COVID-19 crisis and allow for a more suitable effectiveness date for the new basket.

The review maintained the current composition of the SDR currency and interest rate baskets and updated the weights for the currencies in the SDR basket, in line with the IMF Executive Board-approved methodology.
The currencies in the basket maintain the same ranking of the weights set in the 2015 review, with slightly higher weights for the U.S. dollar and the Chinese renminbi and, accordingly, somewhat lower weights for the British pound, the euro, and the Japanese yen.
The new basket will take effect on August 1, 2022, with the current basket remaining in effect until July 31, 2022.
The SDR valuation review does not affect members’ quotas in the Fund.

In the five-year period for this review (2017‒21), developments in key variables relevant for the SDR valuation suggest that there have been no major changes in the roles of currencies in the world economy.
The countries and the currency union (euro area) whose currencies are currently included in the SDR basket remain the five largest exporters and their currencies continue to account for the majority of international financial transactions.

While operational considerations are not formal requirements for the SDR currency selection criteria, currencies in the SDR basket are nevertheless expected to satisfy a number of characteristics in order to facilitate a smooth functioning of Fund operations.
The 2015 SDR valuation review raised operational issues related to the hedging of SDR positions and operations in the Chinese renminbi; the current review followed up through a survey conducted among all participants in the SDR department and prescribed holders.
Survey findings:
- Most SDR users do not experience significant obstacles when operating in the five SDR basket currencies’ markets.
- Remaining operational challenges were identified, most pertaining to the Chinese renminbi and some for other markets.
- For the Chinese renminbi, identified challenges include:
- A higher burden in terms of transaction costs and operational procedures in the onshore market.
- Inconvenient or less flexible trading hours.
- Lower liquidity compared to more mature markets.
- For other markets, identified challenges include:
- Low or negative interest for the euro and the Japanese yen.
- Transaction costs as a challenge for the British pound.

Following completion of the SDR valuation review, the Chinese authorities issued a press statement noting their intentions to further facilitate operations in the onshore renminbi market.