Number Pb09-11 juNe 2009
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Understanding SpecialDrawing Rights (SDRs)
, senior ellow at the Peterson Institute, has beenassociated with the Institute since 1981. He was project director or the UN High-Level Panel on Financing or Development (the Zedillo Report) in 2001; on leave as chie economist or South Asia at the World Bank during 1996–99; economics proessor at Pontifcia Universidade Católica do Riode Janeiro (1978–81), University o Warwick (1970–77), Massachusetts Institute o echnology (1967, 1980), University York (1963–68),and Princeton University (1962–63); adviser to the International Monetary Fund (1972–74); and economic consultant to the UK reasury (1968–70). His numerous publications include
Reerence Rates and theInternational Monetary System
Dollar Adjustment: How Far? Against What?
(2004).Note: Te author wishes to thank C. Fred Bergsten and Edwin M. ruman or helpul comments on an earlier drat o this policy brie. He is solely responsible or any errors that remain.
© Peter G. Peterson Institute or International Economics. All rights reserved.
A once-amiliar but long-neglected acronym has reappearedin newspapers in recent weeks. We have read that the G-20meeting in London endorsed a proposal that the InternationalMonetary Fund (IMF) should create $250 billion in SpecialDrawing Rights (SDRs). We have been told that one problem with this proposal is that most o the SDR allocation wouldaccrue to countries that are unlikely to use them, and somereaders may have seen proposed ways around this diculty. We have read that the governor o the People’s Bank o China,Zhou Xiaochuan, has proposed that the SDR should gradually displace the dollar at the center o the international monetary system and that surplus countries should be able to converttheir dollar holdings into SDR-denominated assets. No one candoubt that the SDR is back.But what is an SDR? Yes, SDR stands or Special DrawingRight, but that hardly answers the question. How and why didthe SDR originate? How did it get its strange name? How many are there, who holds them, and what can they be used or? Dothe rather-distinct proposals outlined above all reer to the sameanimal? How are these proposals interrelated? Can one specu-late useully about the uture o the SDR? Tis policy brie aimsto answer such questions.
In 1960 one o the most original analysts o the postwar inter-national monetary system, the Belgian/US economist Robertrin, published a small volume with a big thesis called
Gold and the Dollar Crisis
He argued that the system that had beenagreed at Bretton Woods and had just come into operation would not last because its inner workings contained an internalcontradiction. Apart rom gold, whose supply was small anderratic, the increase in demand or international liquidity couldbe satised only i the reserve center, the United States, ran apayments decit to supply more dollars to the world. But suchdecits were bound to undermine condence in an unchangedlink o the US dollar to gold. Te rin Dilemma posited thatthe world thereore conronted a choice between running shorto liquidity and undermining condence in the dollar, which was destined sooner or later to produce a crisis. Analysts argued that the system had other problems, suchas the lack o a crisis-proo adjustment mechanism as a resulto widespread unwillingness to change exchange rates except asa last resort. But ocials decided that the problem they couldsolve best, or at least the one they would solve rst, was therin Dilemma. Teir solution was to create a synthetic reserveasset to supplement the supply o gold. Its price was xed interms o gold at exactly the same level as $1, so that SDR1= $1. Because o a continuing disagreement over whether thenew reserve asset should be considered money (“paper gold”) orcredit (since countries receiving assets had to reconstitute a parto their endowments in due course), it was given the anodyne
1. Robert rin, 1960,
Gold and the Dollar Crisis: Te Future o Convertibility
,New Haven: Yale University Press.