Washington, DC – May 14, 2022:
On May 11, 2022, the Executive Board of the International Monetary Fund
(IMF) completed the quinquennial review of the method of valuation of the
basket of currencies that make up the Special Drawing Right (SDR).
[1]
The review covered the composition and weighting of the SDR currency
basket. The Executive Board also reviewed the corresponding interest rate
instruments used to determine the SDR interest rate. The updated basket
weights will come into effect on August 1, 2022.
The last SDR valuation review was concluded in 2015. Under the existing SDR
valuation method adopted by the Executive Board, the SDR currency basket is
reviewed every five years unless developments in the interim justify an
earlier review. The current review is taking place about one year later
than originally scheduled, as the Executive Board decided in March 2021 to
extend the current basket until July 31, 2022 to prioritize work on the
Fund’s response to the COVID-19 pandemic, including work related to the
2021 General SDR allocation.
Executive Board Assessment
Executive Directors concluded the quinquennial review of the method of
valuation of the Special Drawing Rights (SDR). They supported maintaining
the current method of valuation of the SDR, including the selection
criteria for inclusion in the basket and the methodologies for determining
the currency weights and currency amounts in the basket, while 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 their updated weights in
the baskets.
Directors concurred that the export criterion and the freely usable
criterion should continue to guide decisions on inclusion of currencies in
the basket. They also agreed to maintain the methodology introduced in the
2015 review for determining currency weights and amounts in the SDR basket.
Directors encouraged future reviews to include further analysis of the
weights used in the formula to ensure that it continues to adequately
capture the role of currencies in global trade and financial markets. They
agreed that 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, while continuing to explore
availability of alternative variables to minimize data gaps.
Directors noted that based on developments in trade and financial markets
over the period 2017-2021, the updated weights in the SDR basket maintain
the same ranking of the initial 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. Directors concurred that 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. They called for continuous monitoring
of implications for the SDR valuation framework from fintech and other
developments, including potential economic and financial fragmentation and
high inflation. A few Directors also called for monitoring implications of
economic sanctions on the valuation framework.
Directors welcomed the update on operational issues raised in previous
reviews through a survey of SDR users and the finding that most users do
not experience significant operational challenges using SDRs or operating
in the five SDR basket currencies’ markets. They noted however that the
survey identified some remaining operational challenges for the currencies
in the basket. In this context, Directors broadly acknowledged the progress
made on financial market reforms in China, while calling for additional
efforts to further open and deepen the onshore renminbi market, with some
Directors also stressing the need to further enhance data transparency.
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.
Annex. Summary of Key Decisions
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, the IMF has determined that the five
currencies that meet the selection criteria for inclusion in the SDR
valuation basket will be assigned the following weights based on their
roles in international trade and finance:
-
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
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.
[2]
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.
As a service to the users of SDRs and in order to provide adequate notice,
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 (www.imf.org).
As the currency amounts will be based on a three-month average of exchange
rates, these projections will tend to iterate toward the final effective
amounts, thereby keeping users informed of the likely final currency
amounts in the new basket that takes effect on August 1, 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.
[1]
The SDR is an international reserve asset created by the IMF to
supplement the official reserves of its member countries.
[2]
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. Further
information on the SDR can be found on the IMF's website (
https://www.imf.org/en/data/imf-finances
).
