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special drawing rights and the value of SDR

special drawing rights and the value of SDR

They are Special Drawing Rights – given by the IMF to every member country for balancing its payments.
The SDR is allocated based on the quota fixed in the IMF GB.

If you are interested read the following article by IMF on SDR

The Special Drawing Right (SDR) was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate system. A country participating in this system needed official reserves—government or central bank holdings of gold and widely accepted foreign currencies—that could be used to purchase the domestic currency in world foreign exchange markets, as required to maintain its exchange rate. But the international supply of two key reserve assets— gold and the U.S. dollar—proved inadequate for supporting the expansion of world trade and financial development that was taking place. Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF.

However, only a few years later, the Bretton Woods system collapsed and the major currencies shifted to a floating exchange rate regime. In addition, the growth in international capital markets facilitated borrowing by creditworthy governments. Both of these developments lessened the need for SDRs.

Today, the SDR has only limited use as a reserve asset, and its main function is to serve as theunit of account of the IMF and some other international organizations. The SDR is neither a currency, nor a claim on the IMF. Rather, 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.
The value of the SDR is determined by the value of several currencies important to the world’s trading and financial systems.Initially its value was fixed, so that 1 XDR = 1 U.S. dollar,but this was abandoned in favor of a currency basket after the 1973 collapse of the Bretton Woods system of fixed exchange rates.[14] From July 1974 to December 1980, the XDR consisted of a basket of 16 currencies. From January 1981 until the birth of the euro, the basket was updated to include U.S. dollar, the Deutsche mark, the French franc, the British pound and the Japanese yen as the constituents.Composed of the U.S. dollar, the euro, the British pound and the Japanese yen, the current basket of currencies used to value the XDR is “weighted” meaning that the more important currencies have a larger impact on its value. As of December 2010, the value of one XDR is equal to the sum of 0.423 Euro, 12.1 yen, 0.111 pounds, and 0.66 U.S. dollars.

This basket is re-evaluated every five years, and the currencies included as well as the weights given to them can then change. A currency’s importance is currently measured by the degree to which it is used as a foreign exchange reserve asset and the amount of exports sold in that currency.

Current valuation,USD 0.6600 (41.9%),EUR 0.4230 (37.4%) ,JPY 12.1000 (9.4%),GBP 0.1110 (11.3%).

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