Special drawing rights

Special drawing rights (SDRs) are international reserve assets created by the International Monetary Fund and allocated to its members. They can be exchanged for freely usable currencies, and their value is based on a basket of major currencies.

SDR valuation: The method for calculating an SDR’s value from a weighted basket of major currencies. The currency basket determines the unit’s daily value.
International reserves: Assets held by monetary authorities to meet external payment needs and support confidence in a country’s currency. SDRs form one component of the reserves central banks can use.
Reserve currency: A currency widely held by governments and institutions as a reserve and used in international transactions. Unlike reserve currencies, an SDR is not a currency or a claim on the IMF.
Bretton Woods system: The postwar international monetary system established at Bretton Woods, centered on fixed exchange rates and the US dollar’s link to gold. Strains in this system prompted debate over whether global reserves were adequate.
Seigniorage: The economic benefit a monetary authority receives from issuing money whose face value exceeds its production cost. SDR allocations raise related questions about who benefits from creating international reserve assets.
SDR allocation: The IMF’s distribution of SDRs to member countries in proportion to their quotas. Allocations create members’ SDR holdings and corresponding long-term obligations.
Balance of payments: A record of transactions between a country’s residents and the rest of the world over a period. Members can exchange SDRs for currencies to help address external financing needs.
IMF lending: Financial support that the IMF provides to member countries, usually under specified conditions. An SDR allocation is not an IMF loan, though members pay interest on net use.
Triffin dilemma: The tension between supplying global reserves through a national currency and maintaining confidence in that currency. This dilemma helped motivate proposals for an international reserve asset.
Global financial safety net: The institutions and arrangements that provide financing to countries facing external financial stress. SDRs complement other layers of international crisis financing.

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