The Special Drawing Right (SDR) is an international reserve asset created by the IMF in 1969 to supplement the official reserves of its member countries. Nowadays, its main function is to serve as the unit of account of the IMF and some other international organizations.
The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold — which, at the time, was also equivalent to one US dollar. After the collapse of the Bretton Woods system in 1973, however, the SDR was redefined as a basket of currencies, today consisting of the euro, Japanese yen, pound sterling, and US dollar.The currency value of the SDR is calculated daily (in US dollars). The valuation basket is reviewed and adjusted every five years.
The SDR is neither a currency nor a claim on the IMF. It is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions.Each IMF member country is assigned a quota, based on its relative size in the world economy. A member's quota, denominated in SDRs, determines its financial commitment to the IMF, its voting power, and access limits to financing from the IMF.
People’s Bank of China (PBOC), among other important emerging markets countries, has called at the beginning of this year for a new global reserve currency:
Special consideration should be given to giving the SDR a greater role. The SDR has the features and potential to act as a super-sovereign reserve currency. Moreover, an increase in SDR allocation would help the Fund address its resources problem and the difficulties in the voice and representation reform. Therefore, efforts should be made to push forward a SDR allocation.
