SDR is ... Special Drawing Rights

SDR is an abbreviation for the English name, which in Russian sounds like "special drawing rights" (SDR). SDRs are considered a synthetic currency and an international reserve asset, which is issued by the IMF and is used to ensure financial relations between its members. In this currency reserves are established and credits are given out. According to statistics, in March 2016 there are about 204.1 billion SDRs.

Appearance and purpose

Special Drawing Rights (SDR, SDR, SDR) appeared in 1969 in the context of the Bretton Woods currency system. To maintain a stable exchange rate of their monetary units, countries needed reserves. However, the volume of international supply of gold and dollars was not enough. Confidence in the US currency could be undermined by starting to print new banknotes. Therefore, it was decided to create a new reserve asset.

SDR - this is precisely the missing link in the Bretton Woods system. However, the latter disintegrated soon. Most countries switched to floating exchange rates. Under the new Jamaican system, the SDR is not a vital mechanism. The development of money and capital markets allowed many countries to accumulate significant reserves in foreign currency.

However, the SDR is not a relic of the past. They continued to exist and had a significant impact on alleviating the consequences of the global financial crisis. In 2009, to increase the liquidity of the global economic system, SDRs worth $ 182.6 billion were issued. They supplemented the official reserves of members of the International Monetary Fund, who suffered during the financial crisis.

It can not be said that the SDR is a currency or a requirement of the IMF. Their holders can receive freely used monetary units in exchange for them using two mechanisms:

1. Exchange between members of the IMF, which occurs on a voluntary basis.
2. Purchase of SDRs by countries with strong external positions among countries in need of credit.

Since SDR is a synthetic currency, it can not be used by individuals in day to day life. However, it serves to calculate not only the IMF, but also a number of international organizations (BIS, EBC and other regional development banks).

Currencies in the composition of

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 SDR rate for US dollars was determined as 1: 1. After the collapse of the Bretton Woods system in 1973 and the replacement of its Jamaican value, 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, they added a yuan. The changes took place on October 1, 2016. Now the rate of SDR is determined on the basis of the following weight fractions:

• The American dollar is 41.73%.
• Euro - 30.93%.
• Yuan - 10.92%.
• The Japanese yen - 8.33%.
• British pound sterling - 8.09%.

The cost of SDRs is published every day on the official website of the IMF. Its calculation is carried out on the basis of the weight shares of the basket based on the rates fixed at noon on the London Stock Exchange.

The list of currencies that determine the value of special drawing rights is necessarily reevaluated every five years by the IMF Executive Board or earlier, if the conditions of the world system require it. The last innovation was the inclusion in the basket of the Chinese yuan. 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 interest that is paid to Member States on their holdings in special drawing rights and is levied on distributed reserves.

The rate is calculated weekly based on the weighted average representative interest on debt instruments with a short term repayment term in the money markets of currencies that make up the basket.

Distribution of financial asset

The volume of SDRs on 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 very mechanism of distribution of the rights of borrowing is self-financing. The interest that accrues to states with excess holdings is actually levied on the members of the IMF 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. The designated holders may use SDRs as part of transactions between themselves or with IMF member countries.

Purchase and sale of SDRs

The IMF conducted three SDR allocations for the history of its existence. The total amount of the first was 9.3 billion. This distribution was carried out from 1970 to 1972. The next time the decision on the replenishment of reserve assets was made in 1979. The total amount of the second allocation was 12.1 billion. It was produced from 1979 to 1981. Then, for many years, the reserves of the SDR remained at the same level.

For almost 30 years after this, the decision was taken at the appropriate time that there was no need for this step. However, on August 28, 2009, against the background of the global financial crisis, a third distribution was made. Then an unprecedented number of SDRs was issued. The total amount was 161.2 billion. In addition, two weeks before this, an additional one-off reserve replenishment of $ 21.5 billion was envisaged. It should be noted that until 2009, more than one-fifth of IMF members (those who joined the organization after 1981) never received SDR allocations.

Perspectives and the role of China

In 2016, the World Bank developed a bond program for the domestic market of China. The papers are nominated in SDR 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 SDR. Earlier this year (from October 1), the yuan was included in the basket of the synthetic currency, issued by the IMF. Now SDR is not only the pound sterling, the Japanese yen, the euro and the US dollar.