Special Drawing Rights (SDRs) are a type of international reserve asset created by the International Monetary Fund (IMF). It is a supplementary foreign exchange reserve asset that is used by countries to supplement their official reserves. SDRs were created in 1969 to address the limitations of relying solely on gold and national currencies as international reserve assets.
SDRs are not a physical currency but rather a virtual reserve asset. They are based on a basket of major currencies, including the US dollar, euro, Chinese yuan, Japanese yen, and British pound sterling. The value of SDRs is calculated daily based on the exchange rates of these currencies.
The purpose of SDRs is to provide liquidity to IMF member countries and promote international financial stability. Member countries can exchange SDRs for freely usable currencies when needed. These currencies can be used to finance international transactions, stabilize exchange rates, and address balance of payment difficulties.
SDRs are allocated to IMF member countries based on their respective quotas, which are determined by their economic size and position within the global economy. The allocation of SDRs is intended to supplement member countries' international reserves and provide them with additional financial resources.
Overall, Special Drawing Rights serve as a unit of account, store of value, and medium of exchange among IMF member countries. They contribute to global financial stability and provide a reliable means of international exchange when traditional reserve assets may be insufficient.
