Special drawing rights - imf, Microeconomics

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Special Drawing Rights:

The late 1960s witnessed that the growth in world resources did not keep pace with the growth in international trade. The slackness in the growth of resources was mainly due to the dependence on the accretion of gold to monetary reserves. It was foreboding that the slow growth of monetary resources would result in hampering the growth of international trade and in serious BOP difficulties to many countries. The need to increase the international liquidity, i.e., resources for settlement of international debts, was felt and after much thought on the subject, it resulted in the introduction of Special Drawing Rights (SDRs) in 1970. 

SDRs are entitlements granted to member-countries enabling them to draw from the IMF apart from their quota. It is similar to a bank granting a credit limit to the customer. When SDRs are allocated the country's Special Drawing Account with the IMF is credited with the amount of the allotment. 

Originally, SDRs were to be utilised only for meeting BOP difficulties. But as a consequence of endavours to make it  an international unit of account, the use of SDRs has been liberalised. Now SDRs can be used directly among the members without the approval of the IMF. A country may swap SDRs with another country to acquire a currency it desires. SDRs may be utilised to pay charges to IMF. SDR has gained importance both as a reserve asset and as a unit of settlement of international transactions. Some international banks accept time deposits designated in SDRs. Some countries have pegged their currencies to SDRs.  

 


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