SDR is an abbreviation for the English name, which in Russian sounds like "special drawing rights" (SDR). The SDR is considered a synthetic currency and an international reserve asset that is issued by the IMF and used to secure financial relations between its members. Reserves are established in this currency and loans are issued with it. As of March 2016, there are about 204.1 billion SDRs.
Appearance and appointment
Special Drawing Rights (SDR, SDR, SDR) appeared in 1969 in the context of the Bretton Woods monetary system. To maintain a stable exchange rate of their monetary units, countries needed reserves. However, the international supply of gold and dollars was not enough. Confidence in the American currency could be undermined if new banknotes were printed. Therefore, it was decided to create a new reserve asset.
SDR is exactly the missing link of the Bretton Woods system. However, soonthe latter fell apart. Most countries have switched to floating exchange rates. Under the new Jamaican system, the SDR is not a vital mechanism. The development of money and capital markets has enabled many countries to accumulate significant foreign exchange reserves.
However, SDR is not a thing of the past. They have continued to exist and have had a significant impact in alleviating the effects of the global financial crisis. In 2009, SDRs worth 182.6 billion were issued to increase the liquidity of the global economic system. They supplemented the official reserves of International Monetary Fund members hit by the financial crisis.
You can't say that the SDR is a currency or an IMF requirement. Their holders can receive freely usable monetary units in exchange for them through two mechanisms:
- Exchange between IMF members, which takes place on a voluntary basis.
- SDR buying by countries with strong external positions from countries in need of credit.
Since the SDR is a synthetic currency, it cannot be used by individuals in everyday life. However, it serves for settlements not only within the framework of the IMF, but also a number of international organizations (BIS, EBC and other regional development banks).
Currencies included
Initially, the value of Special Drawing Rights was fixed in gold. One SDR was equivalent to the price of 0.88871 grams of this metal. The rate of SDR to US dollars was determined as 1:1. After the collapse of the Bretton Woods system in 1973year and replacing it with the Jamaican SDR, the value of the SDR began to be calculated on the basis of a basket of currencies. Initially, it consisted of the US dollar, euro, yen and pound sterling. More recently, the yuan has been added to them. The changes took place on October 1, 2016. Now the SDR rate is determined based on the following weight shares:
- US dollar - 41.73%.
- euro - 30.93%.
- yuan – 10.92%.
- Japanese yen - 8.33%.
- British Pound Sterling - 8.09%.
The value of the SDR is published every day on the official website of the IMF. It is calculated on the basis of the weight shares of the basket based on the rates that are fixed at noon on the London Stock Exchange.
The list of currencies that determine the value of special drawing rights is necessarily revalued every five years by the Executive Board of the IMF, or earlier if this is required by changes in the conditions of the world system. The latest innovation was the inclusion of the Chinese yuan in the basket. The next revision of its composition is scheduled for 2021.
Interest on Special Drawing Rights
The SDR rate is the basis for calculating the amount of payments on IMF loans. It also determines the percentage that is paid to member countries on their holdings in special drawing rights and is levied on allocated reserves.
The rate is calculated weekly based on a weighted average of representative interest on short-term debt instruments in the currency money markets that make up the basket.
Distribution of a financial asset
The amount of SDRs in the accounts of IMF members is proportional to their quota in the organization. Thus, each country receives at its disposal an international reserve asset, which is not associated with additional costs.
The borrowing rights allocation mechanism itself is self-financing. The interest that accrues to countries with excess assets is actually charged to IMF members who use them. However, SDR holders are not only members of the International Monetary Fund, but also some other organizations of the corresponding type. Among them, for example, the European Central Bank. Designated holders may use SDRs in transactions among themselves or with IMF members.
Buying and selling SDRs
The IMF has made three SDR allocations in its history. The total amount of the first was 9.3 billion. This distribution was made from 1970 to 1972. The next decision to replenish reserve assets was made in 1979. The total amount of the second distribution was 12.1 billion. It was produced from 1979 to 1981. Then for many years, SDR reserves remained at the same level.
For almost 30 years after that, in due course, the decision was made that this step was not necessary. However, on August 28, 2009, a third distribution was made amid the global financial crisis. Then an unprecedented number of SDRs were issued. The total amount was 161.2 billion. In addition, two weeks beforeThis provided for an additional one-time replenishment of reserves in the amount of 21.5 billion. It should be noted that prior to 2009, more than one-fifth of the IMF's members (those who joined the organization after 1981) had never received an SDR distribution.
Prospects and the role of China
In 2016, the World Bank developed a bond program for the Chinese domestic market. The securities are denominated in SDRs and are intended for institutional investors. The World Bank organized this program together with major Chinese banks. The total amount of the program is 2 billion SDRs. Earlier this year (since October 1), the yuan was included in a basket of synthetic currencies issued by the IMF. Now the SDR is not only the pound sterling, the Japanese yen, the euro and the US dollar.
