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
ChoppinAxe is a little Swedish firm that produces wood planks and operates in a perfectly competitive market. Each firm in the market has the following total cost function:

Market Structures This refers to the nature and degree of competition within a particular market.  Capitalist economies are characterised by a large range of different market

Question: (a) Under what conditions would a central bank be considered independent. (b) Discuss the effects of delegating monetary policy making to an independent agent on

a) What do you understand by equilibrium National Income and to what extent is economic growth beneficial to an economy? b) Explain using both diagrams and mathematical tools,

real GDP is increasingly criticized for its alleged failure to adequately measure the standard of living. To what extent do you think this criticism is valid?

Determine the Specific Place of demand The demand should relate to a specific market as well. For instance, every year in the town of Dehradun, demand for school bags is 4,000

Problem 1: All economies of the world can be said to be ‘mixed', to a greater or lesser degree, in that there is no economy where there is no state activity and no economy wher

Drafting of Production Policy: Demand forecasts assists in drafting appropriate production policy so that there may not be any space between future demand and supply of a product.


a) A country should always protect its domestic industries. Discuss. b) To what extent can a country actually rely on the principle of Comparative Advantage before engaging