What Are Special Drawing Rights?

Special drawing rights (SDRs) are a world reserve asset with a value based on a basket of five major international currencies. SDRs are used by the International Monetary Fund (IMF) to make emergency loans and are used by developing nations to shore up their currency reserves without the need to borrow at high interest rates or run current account surpluses at the detriment of economic growth.

SDRs are not currencies and can only be accessed by members of the IMF. They play a crucial role in maintaining macr🥀oeconomic stability and global growth by providing emergency liquidity and credit when traditional methods fall short.

How SDRs Came to Be

The was founded in 1945 as part of the 澳洲幸运5官方开奖结果体彩网:Bretton Woods system agreement a year earlier. The goal of the IMF is to foster macroecon𓆏omic stability and global growth and to reduce poverty around the world.

Interestingly, economist 澳洲幸运5官方开奖结果体彩网:John Maynard Keynes first proposed a 澳洲幸运5官方开奖结果体彩网:supranational currency known as “Bancor” at the Bretton Woods conference, but his proposal was rejected. Instead, the IMF adopted a system of pegged exchange rates tied to the value of gold bullion. At the time, the world 澳洲幸运5官方开奖结果体彩网:reserve assets were the U.S. dollar and gold. However, there was not enough supply of these internationally to keep sufficient reserves for the IMF to function properly. In order to fulfill its mandate, in 1969, the IMF created 澳洲幸运5官方开奖结果体彩网:special drawing rights, or SDRs, as a supplement to help fund ꦇits stabilization efforts. 

By 1973, the original Bretton Woods system had been almost completely abandoned. Then-President Richard Nixon restricted gold outflows from the United States, and major currencies shifted from a pegged system to a 澳洲幸运5官方开奖结果体彩网:floating exchange rate regime. Still, the SDR system has been largely successful, with the IMF allocating approximately SDR 660 billion as of November 2024, providing needed 澳洲幸运5官方开奖结果体彩网:liquidity and credit to the global 澳洲幸运5官方开奖结果体彩网:financial system.

Why SDRs Are Needed

According to the IMF, SDRs (or XDR) are an international reserve asset to supplement its member countries’ o﷽fficial money reserves. Technically, the SDR is neither a currency nor a claim on the IMF itself. Instead, 🅠it is a potential claim against the currencies of IMF members.

An SDR allocation is a low-cost method of adding to member nations’ 澳洲幸运5官方开奖结果体彩网:international reserves, allowing members to reduce their reliance on more expensive domestic or 澳洲幸运5官方开奖结果体彩网:external debt. Developing nations can use SDRs as a cost-free alternative to accumulating foreign currency reserves through more expensive means, such as borrowing or running 澳洲幸运5官方开奖结果体彩网:current account surpluses.

The SDR is also used by some international organizations as a unit of account where 澳洲幸运5官方开奖结果体彩网:exchange rate volatility would be too extreme. Such organizations include the 澳洲幸运5官方开奖结果体彩网:African Development Bank, 澳洲幸运5官方开奖结果体彩网:Arab Monetary Fund, 澳洲幸运5官方开奖结果体彩网:Bank for International Settlements, and 澳洲幸运5官方开奖结果体彩网:Islamic Development Bank. By using SDRs, local currency fluctuations do not have as large of an impact. SDRs can only be held by IMF member countries and not by individuals, 澳洲幸运5官方开奖结果体彩网:investment companies, or corporations.

🔯 As of 2000, at least fou🐭r countries their currency to the value of an SDR, even though the IMF discourages such action. 

The Value of the SDR

The of an SDR was initially the equivalent of one U.S. dollar at the time, or 0.88671 grams of gold. When the 澳洲幸运5官方开奖结果体彩网:gold standard changed over to a floating currency system, the SDR instead became valued as a basket of world 澳洲幸运5官方开奖结果体彩网:reserve currencies. This basket includes the 澳洲幸运5官方开奖结果体彩网:U.S. dollar, 澳洲幸运5官方开奖结果体彩网:Japanese yen, euro, 澳洲幸运5官方开奖结果体彩网:British pound, and Chinese yuan.

Every five years, the IMF reviews the components of the currency basket to make sure that its holdings represent the most widely used global currencies. In 2016, the IMF added the 澳洲幸运5官方开奖结果体彩网:Chinese yuan (CNY), making it the first emerging currency to be added to the IMF’s reserves.

The SDR’s 澳洲幸运5官方开奖结果体彩网:interest rate is used for calculating 澳洲幸运5官方开奖结果体彩网:interest due from members of IMF loans paid from SDR holdings. SDRs are allocated by the IMF to its member countries and are backed by the 澳洲幸运5官方开奖结果体彩网:full faith and credit of the member countries’ governments.

In 2024, 1 SDR = 1.3288 U.S. dollars, up 0.0335 over the past 12 months vs. the dollar.

The Bottom Line

Special drawing rights are a world reserve asset whose value is based on a basket of five major international currencies. SDRs are used by the IMF to make emergency loans and 🉐are used by developing nations to shore up their currency reserves without the need to borrow at high interest rates or run current account surpluses at the detriment of economic growth.

While SDRs themselves are not currencies, and can only be accessed by members of the IMF, they play a🎃 crucial role in maintaining macroeconomic stability and global growth by provid✅ing emergency liquidity and credit when traditional methods fall short.