Special Drawing Rights

Katherine Pisciotti Quintero

Special Drawing Right

What is an SDR?

The Special Drawing Right (SDR) is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries.

The SDR is based on a basket of international currencies comprising the U.S. dollar, Japanese yen, euro and pound sterling. It is potentially a claim on freely usable currencies of IMF members.

The value of the SDR is set daily by the IMF on the basis of market exchange rates between the currencies included in the SDR basket.

The SDR also serves as the unit of account of the IMF and some other international organizations.

What is a general SDR allocation?

An SDR allocation is a low cost way of adding to members international reserves, allowing members to reduce their reliance on more expensive domestic or external debt for building reserves.

Are there any costs involved in using the SDRs or returns from accumulating SDRs?

The Fund pays interest to each holder of SDRs, and it makes charges at the same rate on each participant's net cumulative SDR allocations.

What is the SDR interest rate and how is it determined?

The SDR interest rate is determined weekly on each Friday and is based on a weighted average of representative interest rates on 3-month debt in the money markets of the four SDR basket currencies (the U.S. dollar, Japanese yen, euro, and pound sterling).

How does the SDR market work?

It functions in a voluntary basis.

• The Fund facilitates transactions between members seeking to sell or buy SDRs and these counterparties to the voluntary agreements that effectively make a market in SDRs.

• If there are not enough voluntary buyers of SDRs, the IMF can designate members with strong balance of payments positions to provide freely usable currency in exchange for SDRs.

Direct Quotation:

A foreign exchange rate quoted as the domestic currency per unit of the foreign currency. In other words, it...