What is SDR?
Special drawing right, or SDR, is an international currency reserve to supplement IMF member countries’ official reserves. It was created by the International Monetary Fund (IMF) in 1969 to allow countries to purchase their domestic currencies in foreign exchange markets so that they could maintain exchange rates and encourage world trade. In 2009, SDR allocations helped increase liquidity and supplement member countries’ official reserves as they dealt with the global financial crisis.
Which currencies are in the SDR basket?
The US dollar, the euro, Japanese yen and pound sterling make up the SDR basket. It’s been that way since 1999, when the euro replaced the German Deutsche mark and the French franc.
Who can use SDRs?
IMF members are allocated SDRs. Members can sell them to other member countries, but SDRs cannot be traded on private markets. When a country uses its SDR allocation, it is usually given the SDR equivalent value of one of the major currencies. During the 1997 Asian financial crisis, South Korea mainly received US dollars, and more recently, Greece has been given mainly euro amid its debt crisis.
How are SDR currencies and their weighted values determined?