Special Drawing Rights

What is special drawing rights(SDR) ??

SDR or PAPER GOLD ??

Special drawing rights (SDR) refer to an international type of monetary reserve currency created by the International Monetary Fund (IMF) in 1969 that operates as a supplement to the existing money reserves of member countries.

     ·       It is an unconditional reserve asset to influence the level of world reserves in order to solve the problem of international liquidity.

·       SDR is not currency.

     ·       The value oF an SDR is defined by a weighted currency basket of four major currencies: the US dollar, the euro, the British pound, and the Japanese yen. SDRs are denoted with the ISO 4217 currency code XDR.

HISTORY OF SDRs

    ·       Special drawing rights were created by the IMF in 1969 and were intended to be an asset held in foreign exchange reserves under the Bretton woods system of fixed exchange rates.

    ·       After the collapse of the Bretton woods system in the early 1970s the SDR has taken on a far less important role. Acting as the unit of account for the IMF has been its primary purpose since 1972.

    ·       SDRs were created to the fund articles of agreement in 1969.

ALLOCATIONS:

·       Special drawing rights are allocated to member countries by the IMF.

·       A country’s IMF quota, the maximum amount of financial resources that it is obligated to contribute to the fund, determines its allotment of SDR.

·       Any new allocations must be voted on in the SDR department of the IMF and pass with an 85% majority.

·       All IMF member countries are represented in the SDR the department, but this is not one country, one vote system.

·       Voting power is determined by a member country’s IMF quota. For example, the US has 16.7% of the vote as of March 2, 2018.

·       Allocations are not made on a regular basis and have only occurred on several occasions.

·       The first round took place due to the situation that was soon reversed, the possibility of an insufficient amount of US dollars because of the US reluctance to run the deficit necessary to supply future demand. Extraordinary circumstances have, likewise, led to the other SDR allocation events.