Special Drawing Right (SDR)
The Special Drawing Right (SDR) is an international reserve asset created by the IMF. It is not a currency and cannot be spent directly; it is a claim that a member country can exchange for US dollars, euros, yen, sterling or renminbi.
Also called: SDR · SDRs · Special Drawing Rights · XDR
The IMF created the SDR in 1969 to supplement gold and dollars as reserves. Its value is set daily from a basket of five currencies: the US dollar, euro, Chinese renminbi, Japanese yen and pound sterling. The renminbi joined in 2016, and the weights are reviewed periodically.
SDRs are allocated to IMF members in proportion to their quotas. The largest allocation, equivalent to about US$650 billion, was made in August 2021. A country that needs usable currency exchanges SDRs with another member, either by voluntary agreement or through a member the IMF designates, and pays interest on any holdings below its allocation.
Only central banks, the IMF and a small number of prescribed official institutions can hold SDRs. Companies and individuals cannot. The SDR is also used as a unit of account: the IMF and the Bank for International Settlements keep their books in it, and some international conventions express liability limits in SDRs.
In practice
An SDR allocation is not aid and not free. Using it creates an interest cost, and its usefulness depends on other members being willing to supply hard currency in exchange.
Commonly confused with
| Term | How it differs |
|---|---|
| Reserve currency | A reserve currency can be used to pay for trade and debt directly. An SDR must first be exchanged for one of the currencies in its basket. |
See also
- International Monetary FundThe International Monetary Fund (IMF) is the international organisation of more than 190 countries that monitors the global monetary system, lends to members that cannot meet their external payments, and issues the Special Drawing Right.
- Foreign Exchange ReservesForeign exchange reserves are the foreign-currency assets a central bank holds and can use at short notice: deposits and government securities in major currencies, gold, Special Drawing Rights and the country's reserve position at the IMF.
- Reserve CurrencyA reserve currency is a currency that central banks hold in large amounts as part of their foreign exchange reserves and that is widely used to price trade, issue debt and settle international payments. The US dollar is the dominant one.
- Bretton Woods SystemThe Bretton Woods system was the international monetary order agreed in 1944, under which currencies were fixed to the US dollar and the dollar was convertible into gold at US$35 an ounce. It created the IMF and the World Bank and ended in 1971.
- Hard CurrencyA hard currency is one that is widely accepted for international payment, freely convertible and expected to hold its value, such as the US dollar, euro, yen, pound sterling or Swiss franc. Suppliers abroad generally insist on being paid in one.