2.1.3.2. What are Special Drawing Rights (SDR)?

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. It is an interest bearing - international reserve asset, which can be exchanged for freely usable currencies. The value of the SDR is based on a basket of five major currencies—the US dollar, the euro, the Chinese renminbi (RMB), the Japanese yen, and the British pound sterling.

The Chinese RMB was included in the SDR basket from Effective October 1, 2016. The Board also decided at that time that the weights of each currency would be 41.73 percent for the U.S. dollar, 30.93 percent for the Euro, 10.92 percent for the Chinese yuan, 8.33 percent for the Japanese yen, and 8.09 percent for the Pound sterling.

The SDRs are allocated to the member countries in proportion to their quota subscriptions. Only the IMF members can participate in SDR facility. SDRs being costless as it is just a book entry in the Special Drawing Account of the IMF, is often called paper gold. Whenever such paper gold is allocated, it gets a credit entry in the name of the participating countries in the said account. It is to be noted that SDRs, once allocated to a member, are owned by it and operated by it to overcome BOP deficits.

Criteria for inclusion in the SDR basket

♤ Export criterion: Issuer of currency is an IMF member or a monetary union, that includes IMF members, who is one of the top five exporters of the world.

♤ Determined to be “freely usable” currency by the IMF: Currency is widely used to make payments for international transactions and widely traded in the principal exchange markets.