Special drawing rights, Managerial Economics

Special Drawing Rights (SDR)

These are international reserve currencies created by the International Monetary Fund  (IMF) to overcome the problems of using gold and national currency reserve.  These represent an entirely new form of reserve assets.  The SDR are simply entries in the books of the IMF and do not require expenditure of resources to create them unlike gold.  Also their use does not put any country under strain unlike the use of national reserve currencies.  Initially, the unit of the SDR was pegged to the American dollar, but when the dollar was floated the unit of SDR became a weighted basket of 16 currencies of the world's major trading nations, the weight used in each case being the proportion of World Trade taken up by that country.  Later the unit of SDR was reduced to a weighted basket of the exchange values of five major currencies (the US dollar, the Deutschemark, the French franc the Japanese yen and the Pound sterling).  The value obtained is then expressed in dollars.

SDRs are issued by the IMF to member countries in proportion to their quotas and represent claims or rights which are honoured by other members and by the IMF itself.  By joining the scheme, a member accepts an obligation to provide currency, when designated by the Fund, to other participants in exchange for SDRs.  It cannot, however, be obliged to accept SDRs to a greater total value than three times its own allocation.

Participants whose holdings are less than their allocation pay interest on the difference between their allocation and their actual holdings, and members holding SDRs in excess of their allocation receive interest.

Each member of the IMF is entitled to an allocation of SDR, which it can use to pay for its imports or settle international debts. If both the paying country and the country being paid are members of the IMF, then in the books to IMF, the allocation of the paying country will go down and that of the country being paid will go up.  If the country being paid is not a member of IMF, then the country paying can use its allocation of SDR to purchase gold or convertible currency from the IMF or another member of the IMF, whose allocation of SDR will correspondingly increase.

Posted Date: 11/30/2012 5:27:50 AM | Location : United States







Related Discussions:- Special drawing rights, Assignment Help, Ask Question on Special drawing rights, Get Answer, Expert's Help, Special drawing rights Discussions

Write discussion on Special drawing rights
Your posts are moderated
Related Questions
NATIONAL DEBT Taxation does not often raise sufficient revenue for the Government Expenditure.  So, governments resort to borrowing.  This government borrowing is called Publi

explain production function illustrate production with one variable input

Explain the theory of production, Managerial Economics Explain the Theory of Production

Q. Illustrate the sources of monopoly? Merger for Large-scale Production: Thirdly monopoly undertaking can be a consequence of the necessity to produce on a large scale to de

Limitation The degree or success with which the central bank can use its bank rate policy to control the total credit in the economy depends upon the interest elasticity of in

Q. Explain about Inventory Economies? Inventory Economies: Role of inventories is to aid the firm in meeting random changes in the output and the input sides of the operations

"Inflation is not possible under the gold standard." Is this declaration true, false, or uncertain? Describe your answer

Q. Development of Skilled Labour - External Economies? As the industry grows training facilities for labour will increase. This helps development of skilled labour that would i

Q. Example on Relationship between marginal and average cost? This relationship between marginal and average cost can easily be recalled with the aid of Fig. below. It can be s

"A budget deficit that is only temporary cannot be the source of inflation."  Is this statement true, false, or uncertain?  Describe your answer.