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What is the SDR?

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2002
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In 1969, the IMF created the SDR as an international reserve asset to supplement members’ existing reserve assets. It is the unit of account of the IMF and some other international and regional organizations.

The SDR is a purely official asset, held by member countries, the IMF, and certain other international institutions. It is used primarily in transactions with the IMF, either by members settling obligations to the IMF, some of which must be paid in SDRs, or by the IMF making interest payments and loan disbursements to members.

SDR valuation on August 19, 2002
CurrencyCurrencyExchangeU.S. dollar
amountrate1equivalent
Euro0.42600.980600.417736
Japanese yen21.0000118.670000.176961
Pounds sterling0.09841.538000.151339
U.S. dollar0.57701.000000.577000
Total1.323036
SDR 1 = US$1.32304US$1 = SDR 0.755837

Exchange rates in terms of U.S. dollars per currency unit, except for the yen, which is expressed as currency units per U.S. dollar.

Data: IMF Treasurer’s Department.
SDR 1 = US$1.32304US$1 = SDR 0.755837

Exchange rates in terms of U.S. dollars per currency unit, except for the yen, which is expressed as currency units per U.S. dollar.

Data: IMF Treasurer’s Department.

How are SDRs allocated?

The IMF allocates SDRs to its members in proportion to their IMF quotas. The last allocation took place in January 1981 to the IMF’s then 141 member countries, bringing total allocations to SDR 21.4 billion.

SDR allocations are not loans; members may use them to meet a balance of payments financing need without undertaking economic policy measures or repayment obligations. However, a member that uses its SDRs pays the SDR interest rate on the amount by which its allocations exceed its holdings. A member that holds SDRs in excess of its allocation receives interest.

More than one-fifth of the IMF’s current members have never received an SDR allocation because they joined the IMF after the last allocation. In addition, some members have not participated in every allocation.

To bring the cumulative SDR allocations of all member countries to a uniform 29 percent of quota, the Board of Governors adopted a resolution in September 1997 in favor of an amendment to the IMF’s Articles of Agreement providing for a special onetime allocation of SDR 21.4 billion. The Fourth Amendment, when approved, will double the current level of cumulative SDR allocations. The proposed amendment needs to be approved by three-fifths (110) of the members having 85 percent of the total voting power. As of mid-August 2002, 121 members having 73 percent of the total voting power had agreed. Thus, approval by the United States would put the amendment into effect.

How is the SDR’s value determined?

The SDR’s value is based on the value of a basket of currencies. Movements in the exchange rate of any one component currency will tend to be partly or fully offset by movements in the exchange rates of the other currencies. Thus, the value of the SDR tends to be more stable than that of any single currency in the basket, which makes the SDR a useful unit of account.

The basket is reviewed every five years to ensure that the currencies included in it are representative of those used in international transactions and that the weights assigned to the currencies reflect their relative importance in the world’s trading and financial system.

The latest change in the valuation basket was in 2001 and took account of the introduction of the euro. The new valuation basket includes the U.S. dollar, the euro, the Japanese yen, and the pound sterling. Its value is determined daily based on exchange rates quoted at noon in the London market and is posted each day on the IMF’s website (www.imf.org/external/np/tre/sdr/basket.htm).

How is the SDR interest rate determined?

The SDR interest rate is the basis for calculating the interest charges on regular IMF financing and the interest rate paid to members that are creditors to the IMF. Adjusted weekly, the SDR interest rate is a weighted average of interest rates on selected short-term domestic instruments in the markets of the currencies included in the SDR valuation basket and is posted each week on the IMF website (www.imf.org/external/np/tre/tad/sdr_ir.cfm). The SDR interest rate for the week beginning August 26, 2002, was 2.23 percent.

Photo credits: Denio Zara, Padraic Hughes, Pedro Márquez, and Michael Spilotro for the IMF, pages 1, 15,18,26, and 29; Antony Njuguna for Reuters, page 2; Staff photographer for Reuters, page 3; Georges Gobet for AFP, page 3; STR for Reuters, page 8; Luke Hunt for AFP, page 9; IMF, page 25; Shamil Zhumatov for Reuters, page 30; Gerard Malie for AFP, page 30; Mike Hutchings for Reuters, page 31; Robyn Beck for AFP, page 31; Boris Roessler for AFP, page 31; Mauricio Lima for AFP, page 31.

Illustration credits: Massoud Etemadi for the IMF, pages 11, 13, and 16; Miel, Cartoonist & Writers Syndicate, page 20.

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