## Recent Fall in the SDR Interest Rate--Implications and Proposed Amendments to Rule T-1

_Policy Papers, October 16, 2014_

## Source details

**Canonical URL:** [Recent Fall in the SDR Interest Rate--Implications and Proposed Amendments to Rule T-1](https://www.imf.org/en/publications/policy-papers/issues/2016/12/31/recent-fall-in-the-sdr-interest-rate-implications-and-proposed-amendments-to-rule-t-1-pp4918)

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## Bibliographic details
- Published: October 16, 2014
- Series: Policy Papers

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### Background and current measurement
- The SDR interest rate is calculated under the current Rule T-1 as the weighted average of interest rate instruments in the SDR basket.
- The SDR interest rate "stood at just 3 basis points for the week of October 13th."
- Market rates could decline further, which could reduce the SDR interest rate to zero or negative levels under the formula of the current Rule T-1.

### Legal constraints and fiscal implications
- There is no authority under the Articles of Agreement for the Fund to establish a zero or negative SDR interest rate.
- "The wording of the relevant provisions in the Articles does not leave room for a zero or negative rate, and nothing in the legislative history of the First and Second Amendments suggests that zero or negative rates were ever contemplated."
- Negative SDR interest rates would have adverse implications for the Fund’s finances.

### Burden sharing mechanism effects
- Very low SDR interest rates affect the functioning of the burden sharing mechanism for deferred charges.
- Under current Board decisions, the equal burden sharing (where creditors and debtors as a group generate equal amounts to cover deferred charges) "requires a minimum positive SDR interest rate to operate."
- The SDR interest rate has "now fallen below that minimum level."

### Proposed technical amendments
- Set a 5 basis point floor on the SDR interest rate.
- Change the rounding rules on the SDR interest rate and the burden sharing adjustment.
- Reduce the 1 basis point minimum of the burden sharing adjustment to 0.1 basis point.
- Rationale: "These measures would preserve a minimal capacity of equal burden sharing aimed at protecting the Fund’s balance sheet, while limiting potential departures of the SDR interest rate from market interest rates."

### Key statistics and dates cited
- SDR interest rate: 3 basis points (week of October 13th).
- Proposed floor on the SDR interest rate: 5 basis points.
- Current burden sharing adjustment minimum: 1 basis point.
- Proposed burden sharing adjustment minimum: 0.1 basis point.
- Publication date on the page: October 16, 2014.

*Source: Recent Fall in the SDR Interest Rate--Implications and Proposed Amendments to Rule T-1*

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- **Executive Summary**
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_Source: https://www.imf.org/en/publications/policy-papers/issues/2016/12/31/recent-fall-in-the-sdr-interest-rate-implications-and-proposed-amendments-to-rule-t-1-pp4918_