Special drawing rights (S.D.R.s)

Updated: Aug 20, 2021

S.D.R.s are, in effect, an international reserve currency sponsored by the International Monetary Fund (I.M.F.), through the group of ten. The idea was originally put forward by J. M. Keynes, who had suggested an international currency to be known as ‘Bancor’. This idea was dropped, but in 1969 the Group of Ten persuaded the I.M.F. to introduce special drawing rights, which were similar to Keynes’s currency but consisted of ‘paper gold’. Members of if the I.M.F. were automatically allocated S.D.R.s when the original issue was made and these became part of their official reserves. The original allocation was made proportionally to the quotas of currency originally subscribed by the various countries to the l.M.F. on its formation. Though since then additional allocations have been made on bases determined by the directors of the l.M.F. The drawings are ‘special’ in that they are additional to the credit facilities already existing for member countries of the l.M.F. and, unlike the latter, are not repayable. S.D.R.s can be used in settlement of international trade balances, and a member country must, if asked by the l.M.F., supply its own currency to another member country in exchange for S.D.R.s, unless it already holds more than three times its original allocation. There is also a requirement that each recipient member must retain at least 30 per cent of its original allocation in its official reserves. S.D.R.s can also, as demonstrated by the U.K., be used to repay debts to the l.M.F. itself.

The money value of the S.D.R. was originally expressed in gold, which had a fixed dollar price. Since 1974 member countries have had to agree the value of the S.D.R. in terms of their own separate currencies and it has become, itself, the standard unit of account of the l.M.F.

Reference: The Penguin Business Dictionary, 3rd edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.