Special Drawing Rights

SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries

What is SDR?

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SDRs are an arcane and complex topic. With the agreement of the Executive Board, the Fund periodically allocates official SDRs to member countries in proportion to their IMF quotas. A basket of currencies comprise the SDR. The Fund and the Board review the currencies included in the SDR every five years. Presently, the currencies included in the SDR are those currencies issued by Fund members whose exports of goods and services during the five-year period ending 12 months before the effective review date had the largest value and that are “freely useable”. SDR weights are currently based on the value of exports and the amount of reserves denominated in the respective currencies

 

At each five-year review, the IMF Board establishes the initial weights of the currencies in the IMF basket, but during the five-year period the weights change on a daily basis as a function of movements in exchange rates in the constituent currencies. For example, appreciating currencies gain a larger share of the basket and depreciating currencies a smaller share. Since 1969 the constituent currencies in the SDR and their weights have varied from time to time during sequential five-year periods. The next official reconstitution of the SDR will be in 2010 and will take effect in 2011. SDRs are an official reserve asset and bear interest which is based on the weighted average interest rate of the representative short-term money market rates of the SDR basket currencies. As of October 23, 2009 the interest rate on SDRs is 0.27 percent.. Coats (1990) suggests that the “the official SDR can be thought of as an interest-bearing security that has the special quality that it can be transferred like a currency to settle obligations”, methoxetamine.