Press Release: IMF Executive Board Completes the 2015 Review of SDR Valuation

IMF News, December 1, 2015

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Canonical URL: Press Release: IMF Executive Board Completes the 2015 Review of SDR Valuation

Executive Directors completed the quinquennial review of the method of valuation of the Special Drawing Right (SDR).
Directors reaffirmed the existing currency selection criteria for the SDR basket:
- the export criterion, and
- the freely usable criterion (as defined under Article XXX(f) of the Articles of Agreement).
Directors applied a currency-based approach (as used for monetary unions since 2000) when assessing the export criterion for all currencies.
Effective October 1, 2016, the Chinese renminbi (RMB) is determined by the Fund to be freely usable and will be added as a fifth currency in the SDR basket.
All changes decided by Directors will take effect as of October 1, 2016.
The next review of the method of valuation of the SDR should take place by September 30, 2021, unless developments in the interim justify an earlier review.

Directors noted substantial increases in international use and trading of the RMB across the indicators used for assessment since the last review.
Directors concluded the RMB now meets both criteria for SDR inclusion:
- meets the export criterion (China is the third-largest exporter), and
- is “in fact, widely used to make payments for international transactions” and “widely traded in the principal exchange markets.”
Directors commended Chinese authorities for implementing substantial reforms supporting RMB internationalization, while noting remaining operational challenges and the importance of continued reforms.
Directors judged the administrative burden of expanding the basket by one currency as manageable.

Directors adopted a new formula assigning equal weights to:
- exports, and
- a composite financial indicator.
The composite financial indicator comprises, in equal shares:
- official reserves denominated in the member’s (or monetary union’s) currency that are held by other monetary authorities that are not issuers of the relevant currency,
- foreign exchange turnover in the currency, and
- the sum of outstanding international bank liabilities and international debt securities denominated in the currency.
Directors welcomed that the formula:
- increases the share of financial variables relative to exports,
- broadens financial variable scope to cover private sector transactions, and
- sets fixed weights for exports and financial variables.
Where data are not available from uniform sources or for each year of the valuation period, appropriate alternative data sources shall be used and the average values of available data shall be calculated as inputs.
Directors underscored the importance of addressing remaining data gaps, including in the currency coverage of the COFER database, ahead of the next SDR review.

The SDR basket will include five currencies: U.S. dollar, euro, Chinese renminbi, Japanese yen, and pound sterling.
In accordance with the adopted formula, the following weights will be used to determine the amounts of each of the five currencies in the new SDR basket:
- U.S. dollar 41.73 percent
- Euro 30.93 percent
- Chinese renminbi 10.92 percent
- Japanese yen 8.33 percent
- Pound sterling 8.09 percent
The dollar and the euro would continue to account for the bulk of the weight in the SDR basket.
The amounts of each currency in the revised basket will be calculated on September 30, 2016 based on exchange rates of the component currencies over the three months ending on that date, ensuring the value of the SDR is the same on September 30, 2016 under the current and revised valuation baskets.
The IMF will publish illustrative currency amounts in the weeks leading up to October 1, 2016.
A press release providing the final currency amounts in the new SDR valuation basket to take effect on October 1, 2016 will be issued by the IMF on September 30, 2016.

The RMB will be represented in the SDR interest rate basket by the three-month benchmark yield for China Treasury bonds.
The interest rate representatives that will continue to serve for other currencies:
- three-month Treasury bills of the United States,
- three-month Treasury bills of the United Kingdom,
- three-month Treasury bills of Japan,
- three-month spot rate for euro area central government bonds with a rating of AA and above (published by the European Central Bank).
The first SDR interest rate based on the new basket will be determined on October 7, 2016, and will be applied for the week beginning October 10, 2016.
Directors noted the SDR interest rate is likely to be affected when the new SDR currency basket comes into effect and requested a comprehensive discussion of implications in the context of the next review of the Fund’s income position in April 2016.

Current SDR basket was extended from December 31, 2015 through September 30, 2016 to ensure smooth functioning pending the review outcome and to provide lead time for users.
Effectiveness date for RMB determination and basket changes: October 1, 2016.
Calculation date for currency amounts in the revised basket: September 30, 2016.
Determination of first SDR interest rate under new basket: October 7, 2016 (applied the week beginning October 10, 2016).

International Monetary Fund — Press Release No. 15/543 (December 1, 2015).