Special Drawing Rights
From Wikipedia, the free encyclopedia
Special Drawing Right
(
SDR
) is themonetaryunit of the reserve assets of theInternational Monetary Fund(IMF). The unit was created in 1969 in support of theBretton Woods system of fixed exchange ratesto alleviate the shortage of U.S. dollar
and gold reserves in the expansion of international trade.
The SDR unit is defined asa weighted sum of contributions of four major currencies, reevaluated and adjustedevery five years, and computed daily in terms of equivalent United States dollars.Special Drawing Rights are not a currency, but they represent potential claims on thecurrencies of the IMF members. SDRs obtain their reserve asset power from thecommitments of the IMF member states to hold and honor them for payment of balances. The IMF uses SDRs for its monetary unit of account. SDRs are denotedwith theISO 4217 currency code
XDR
.Special Drawing Rights are allocated to member states as a low cost alternative todebt financing for building reserves. Such allocations provide an unconditionalliquidity for the SDRs. After the collapse of the Bretton Woods agreement in 1973,only one allocation was made until 2009, when a third allocation enlarged the system by a factor of 8 and increased countries' holdings by about 75%. A further specialallocation the same year compensated those countries which had joined the fund since1981. As of September 2009, total SDR allocations amount to SDR 204 billion.
Special Drawing Rights carry an interest rate that is computed weekly by the IMF. Itis paid or received quarterly by the members for deviations of their SDR holdingsfrom their SDR allocations.
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SDRs are used as a unit of account by the IMF and several other internationalorganizations. A few countries peg their currencies against SDRs, and it is also usedto denominate some private international financial instruments. For example, theWarsaw convention, which regulates liability for international carriage of persons,luggage or goods by air, uses SDRs to value the maximum liability of the carrier.In theeurozone, theeurois displacing the SDR as a basis to set values of various
currencies, includingLatvian lats. This is a result of theERM II convergence criteria
which now apply to states entering the European Union.
In Japan,JETRO and others are using the SDR to calculate ODA, official
development assistanceaid.SDRs were originally created to replace gold and silver in large internationaltransactions and provide a cost-free alternative to member states for building reserves.Under theBretton Woods system, the reserves of gold and U.S. dollars proved toolimited to support the growth of international trade and exchange. Thus SDRs arecredits that nations with balance of tradesurpluses can draw upon from nations withdeficits.It has also been suggested that having holders of US dollarsconvert those dollars into
SDRs would allow diversification away from the dollar without accelerating thedecline of the value of the dollar.
When Special Drawing Rights were created in 1969, when the Bretton Woods systemwas still operational, one SDR was defined as the value of 0.888671 grams of gold.
After the breakdown of the fixed exchange rate system, SDRs were defined in termsof a basket of major currencies used in international trade and finance.For the period of 2006-2010, one SDR is the sum of 0.6320US Dollars, 0.4100euro,
18.4Japanese yenand 0.0903 pound sterling.
Due to varyingexchange rates, the relative value of each currency varies continuouslyand thus the SDR value fluctuates. The IMF fixes the value of one SDR in terms of United States dollars daily, based on the exchange rates of the base currencies, asquoted at noon at theLondonmarket. If the London market is closed, New York
market rates are used, and if both markets are closed,European Central Bank reference rates are used. The latest U.S. dollar valuation of the SDR is available fromthe International Monetary Fund web site.
Before the introduction of the euro in 1999, its position was taken by the DeutscheMark and theFrench franc. The weight of each currency in the definition is
determined by the IMF Executive Board in accordance with the relative importance of the currency in international trade and finance every five years.
Definition of 1 XDR (and approximate relative contribution)
Period
0.540 (ca.42%)0.460 (ca.19%)0.740 (ca.13%)34.0 (ca.13%)0.0710(ca. 13%)
1986– 1990
0.452 (ca.42%)0.527 (ca.19%)1.020 (ca.12%)33.4 (ca.15%)0.0893(ca. 12%)
1991– 1995
0.572 (ca.40%)0.453 (ca.21%)0.800 (ca.11%)31.8 (ca.17%)0.0812(ca. 11%)
1996– 1998
0.582 (ca.39%)0.446 (ca.21%)0.813 (ca.11%)27.2 (ca.18%)0.1050(ca. 11%)
Period
0.5820(ca. 39%)0.2280(ca. 21%)0.1239(ca. 11%)27.2 (ca.18%)0.1050(ca. 11%)= 0.3519 (ca. 32%)
2001– 2005
0.5770(ca. 45%)0.4260 (ca. 29%)21.0 (ca.15%)0.0984(ca. 11%)
2006– 2010
0.6320(ca. 44%)0.4100 (ca. 34%)18.4 (ca.11%)0.0903(ca. 11%)1.
When the euro was introduced in 1999, it simply replaced the mark andfranc at the fixed conversion rate. The IMF officially quoted the amounts of converted marks and francs separately.
Like any national currency, Special Drawing Rights carry a weekly determinedinterest rate.
The rate is based on a weighted average of the representative short termrates in the money markets of the base currencies. The SDR interest rate is paid by theIMF members on any shortfall of SDR subscriptions (below their cost-freeallocation), and on non-concessional IMF loans. The IMF pays its members theinterest rate on the fraction of their SDR subscriptions that is above their allocationquota.
SDR allocations by the IMF are officially authorized by theG-20conferences and published by the International Monetary Fund.
Allocations began in 1970 in yearly installments, creating an initial pool of SDR 9.3 billion by 1972. A second series of installments brought the total to 21.4 billion by1981. Since then, up to the 2008 banking crisis, no new allocations took place. On 2April 2009, theG-20authorized the issuance of $250 billion in new SDRs to augmentthe foreign reserves of IMF members and quickly channel resources into emergingeconomies.
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