Special Drawing Rights (SDR) are costless assets that increase a nation's foreign exchange reserves without the need for an actual transfer of funds. Allocated to nations by the International Monetary Fund (IMF), SDRs represent a claim to foreign currencies for which they may be exchanged.
Today, the US Dollar is the world's primary foreign exchange reserve asset, and SDRs may be little used by the nations that hold them.Some nations, notably China and Russia (as well as the UN), favor increasing the substance and function of the SDR, however.
Although SDRs are denominated in US dollars, their nominal value is derived from a basket of currencies; in this case a fixed amount of Japanese Yen, US Dollars, British Pounds and Euros.The proportion each of these four currencies contribute to the nominal value of a SDR is reevaluated every five years.
SDRs are denoted with the ISO 4217 currency code XDR.
Created by the IMF in 1969 and originally intended to be the primary asset held in foreign exchange reserves under the Bretton Woods fixed exchange rate system,the SDR has, after the collapse of that system in the early 1970s, taken on a far less important role.
Special Drawing Rights are allocated to nations by the IMF. A nation's IMF quota, the maximum amount of financial resources that it is obligated to contribute to the fund, determines its allotment of SDRs.
Allocations are not made on a regular basis and have only occurred on a handful of occasions.
||USD 9.3 billion
||USD 12.1 billion
|September 9, 2009
||USD 21.4 billion
|April 2, 2009
||USD 250 billion
The IMF acts as an intermediary in the voluntary trading of Special Drawing Rights as well as having the authority to order nations with strong foreign exchange reserves to purchase SDRs from nations with weak reserves.But the claim to foreign currency that SDRs represent is not a claim on the IMF,and it is not the IMF that pays out foreign currency in exchange for SDRs.
When Special Drawing Rights were created in 1969 one SDR was defined as having a value of 0.888671 grams of gold, the value of the US dollar at that time.After the breakdown of the Bretton Woods system in 1974, SDRs were redefined in terms of a basket of major currencies used in international trade and finance.
For the period of 2006-2010, one SDR is the sum of 0.6320 US Dollars, 0.4100 euro, 18.4 Japanese yen and 0.0903 pound sterling.
Due to varying exchange rates, the relative value of each currency varies continuously and thus the value of SDRs fluctuate. The IMF fixes the value of one SDR in terms of US dollars daily based on the exchange rates of the constituant currencies,as quoted at noon at the London market.If the London market is closed, New York market rates are used instead, and if both markets are closed, European Central Bank reference rates are used.
The US dollar valuation of the SDR is always available from the International Monetary Fund web site.
Like national currencies, Special Drawing Rights carry an interest rate.The SDR interest rate is determined weekly and is based on a weighted average of representative interest rates on short-term debt in the money markets of the SDR basket currencies.The SDR interest rate is available from the IMF website.
SDRs are used as the unit of account for the IMF and several other international organizations,such as JETRO and the Universal Postal Union.
In some international treaties and agreements, SDRs are used to value penalties, charges or prices, as is the case with the Convention on Limitation of Liability for Maritime Claims, where personal liability for damages to ships are capped at SDR 330,000.The Warsaw convention, the Montreal Convention and other treaties also use SDRs in this way.
A few countries peg their currencies to the SDR.
The African Development Bank's own "currency", the Units of Amount (UA), equals the SDR currency basket.
In the media
Primary reserve currency
In late March 2009 Zhou Xiaochuan, governor of the People's Bank of China, proposed using special drawing rights as a worldwide reserve currency in place of the US dollar as a way to cope with the multitude of problems associated with the US Dollar and the Euro being used as world reserve currencies.However, independent economists point out that the SDR is unlikely to emerge as an alternative reserve currency in the foreseeable future.A few of them, in fact, argue that China's proposal may be motivated by political (rather than economic) considerations.
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