Special drawing rights (SDRs, code ) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). SDRs are units of account for the IMF, and not a currency per se. In 1973, following the termination of the Bretton Woods agreement in 1971, the IMF redefined the SDR as equivalent to the value of a specific selection of world currencies. The number of SDRs in existence was around XDR 21.4 billion in August 2009. During the 2008 financial crisis, an additional XDR 182.6 billion was allocated to "provide liquidity to the global economic system and supplement member countries' official reserves". By October 2014, the number of SDRs in existence was XDR 204 billion. Due to economic stress caused by the response to the COVID-19 pandemic, several finance ministers of poorer countries called for a new allocation to support member economies as they seek ways to recover, and some economists called for the allocation to be as high as $4T. In March 2021, the G24 and others proposed an allocation of $500B for this purpose. In response, XDR 456.5 billion (about US$650B) was allocated on 23 August 2021.
The value of a SDR is based on a basket of key international currencies reviewed by IMF every five years. The weights assigned to the currencies in the XDR basket are adjusted to take into account their current prominence in terms of international trade and national foreign exchange reserves.
Name
While the ISO 4217 currency code for special drawing rights is XDR (and the numeric code is 960), they are often referred to by their acronym SDR. The name was chosen as a compromise between parties who wanted an international currency and those who wanted a credit facility.
History
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. Acting as the unit of account for the IMF has been its primary purpose
One reason XDRs may not see much use as foreign exchange reserve assets is that they must be exchanged into a currency before use. voiced its displeasure at the current international monetary system, and promoted measures that would allow the XDR to "fully satisfy the member countries' demand for a reserve currency." These comments, made by a chairman of the People's Bank of China, Zhou Xiaochuan, drew media attention, and the IMF showed some support for China's stance. It produced a paper exploring ways the substance and function of the XDR could be increased. In 2009, an XDR allocation was made to countries that had joined the IMF after the 1979–1981 round of allocations was complete (and so had never been allocated any). many of the beneficiaries of this 2009 allocation were developing countries.
COVID-19 pandemic
On 23 August 2021, the IMF allocated $650 billion worth of XDRs to all 190 members of the IMF in proportion to member quotas in response to COVID-19 related balance of payments concerns. This allocation of XDRs represents roughly two-thirds of all XDRs currently in circulation, and was by far the largest ever single allocation of XDRs.
Value definition
Currency basket
To determine the composition of the XDR, the IMF takes into account several currencies important to the world's trading and financial systems. A currency's importance is currently measured by two factors: the amount of exports sold in that currency, and whether that currency is considered "freely usable" (determined by its use as a foreign exchange reserve asset and how widely it is used in international transactions). Changing the XDR's value definition requires at least 70% of the votes among the IMF members. The changes take effect at the end of the five-year period (one to two months after the board review). One business day before taking effect, the newly defined weights are converted to currency amounts based on an average of the exchange rate over the past three months, such that the value of the XDR in U.S. dollars remains the same before and after the change. The currency amounts then remain fixed throughout the five-year period. When the euro was introduced in January 1999, it replaced the German mark and French franc and the basket consisted of four currencies. In 2016, the renminbi was added to the basket with a 10.9% weighting.
In March 2021, the IMF announced that the next re-evaluation, normally scheduled for 1 October 2021, would be postponed to 1 August 2022, in order to prevent the basket's definition from changing during the COVID-19 pandemic.
{| class="wikitable" style="font-size: 98%; text-align: center;" width="70%"
|+
! Period
! colspan="16" | USD
|-
! 1969–1971
| colspan="16" | (100%)
|-
!
! USD
! DEM
! GBP
! FRF
! ITL
! JPY
! CAD
! NLG
! BEF
! SAR
! ESP
! AUD
! SEK
! IRR
! NOK
! ATS
|-
! 1974–1980
| 0.4 (32.6%) || 0.32 (10.2%) || 0.05 (9.7%) || 0.42 (7.1%) || 52.0 (6.6%) || 21.0 (6.0%) || 0.07 (5.9%) || 0.14 (4.3%) || 1.6 (3.5%) || 0.13 (3.0%) || 1.5 (2.1%<!--2.147%-->) || 0.017 (2.1%<!--2.056%-->) || 0.11 (2.1%<!--2.053%-->) || 1.7 (2.0%<!--2.047%-->) || 0.1 (1.5%) || 0.28 (1.3%)
|-
|}
{| class="wikitable" style="font-size: 98%; text-align: center;" width="70%"
!
! USD
! DEM
! FRF
! JPY
! GBP
|-
! 1981–1985||27.2 (18%) || 0.105 (11%)
|-
!2001–2005
| 0.66 (41.9%) || colspan="2" |0.423 (37.4%) ||12.1 (9.4%) ||0.111 (11.3%)
|-
|}
{| class="wikitable" style="font-size: 98%; text-align: center;" width="70%"
!
! USD
! EUR
! CNY
! JPY
! GBP
|-
! 2016–2022
| 0.58252 (41.73%) || 0.38671 (30.93%) || 1.0174 (10.92%) || 11.9 (8.33%) || 0.085946 (8.09%)
|-
! 2022–2027
| 0.57813 (43.38%) || 0.37379 (29.31%) || 1.0993 (12.28%) || 13.452 (7.59%) || 0.080870 (7.44%)
|}
Daily valuation
Because of fluctuating exchange rates, the relative value of each currency varies continuously, as does the value of the XDR. The IMF sets the value of the XDR in terms of United States dollars every day. The latest United States dollar valuation of the XDR is published on the IMF website. For example, on 31 January 2021, the value was USD$1.44080, and on 22 June 2021, the value was USD$1.426480.
Allocations
XDRs 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 XDRs. but this is not a one country, one vote system; voting power is determined by a member country's IMF quota. For example, the United States has 16.7% of the vote as of 2 March 2011. This means the United States has a de facto veto on all new XDR allocations, it is currently the only country that does.
Allocations are not made on a regular basis and have only occurred on rare occasions. The first round took place because of a situation that was soon reversed, the possibility of an insufficient amount of U.S. dollars because of U.S. reluctance to run the deficit necessary to supply future demand. Extraordinary circumstances have, likewise, led to the other XDR allocation events. For example, during the 2008 financial crisis, XDR 182.6 billion was allocated to "provide liquidity to the global economic system and supplement member countries’ official reserves". The 2011 allocations were to low-income member countries.
|-
| 23 August 2021 African Development Bank, Arab Monetary Fund, Asian Development Bank, Bank for International Settlements, In addition, charges, liabilities, and fees prescribed by some international treaties are denominated in XDRs. In 2003, the Bank for International Settlements ceased to use the gold franc as their currency, in favour of XDR.
Some bonds are also denominated in XDR, like the IBRD 2016 XDR denominated bonds.
Use in international law
In some international treaties and agreements, XDRs are used to value penalties, charges or prices. For example, the Convention on Limitation of Liability for Maritime Claims caps personal liability for damages to ships at XDR 330,000. The Montreal Convention and other treaties also use XDRs in this way, capping damages at XDR 128,821.
Use as currency
According to the IMF, "the SDR may not be any country’s optimal basket", This is a substantial decrease from 1983, when 14 countries had XDR pegs. Between 1981 and 2002, the Iranian rial was pegged to the XDR. As of 2010, Syria pegs its pound to the XDR.
See also
- Bancor
- Reserve currency
- Group of Ten (IMF)
- Central securities depository
Notes
References
Citations
Works cited
External links
- Today's US dollar value of the XDR from the IMF
- SDRs per Currency unit and Currency units per XDR last five days
- XDR Interest Rate, Rate of Remuneration, Rate of Charge and Burden Sharing Adjustments 2009
- XDR Interest Rate Calculation
- Can IMF Currency Replace the Dollar?