Special Drawing Rights

Special Drawing Rights (SDRs), type of international monetary reserve currency established (1968) by the International Monetary Fund (IMF). Created in response to worries concerning the limitations of gold and dollars as the sole means of settling international accounts, SDRs are designed to augment international liquidity by supplementing the standard reserve currencies. SDRs are assigned to the accounts of IMF members in proportion to their contributions to the fund. Each participating country agrees to accept them as exchangeable for reserve currencies in the settlement of international accounts. Deficit countries can use them to purchase stronger currencies, which then can be used to pay off balance-of-payments debts. As nations adopted the current system of floating exchange rates (1973), the value of SDRs began to be set relative to a “basket” of major currencies. In 1976 the IMF increased the share of the less-developed countries and moved to make SDRs the primary reserve asset of the international monetary system, supplanting gold and dollars. In 1981 the IMF reduced the basket to five currencies (the U.S. dollar, German Deutschmark, Japanese yen, French franc, and British pound). In 1999 the Deutschmark and franc were replaced by their equivalents in the euro, and in 2016 the Chinese yuan was added to the basket. All IMF accounting is done in SDRs, and commercial banks accept SDR-denominated accounts. The IMF has the exclusive right of allocating SDRs; the last such allocation was made in 2009.

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