Special Drawing Rights (SDRs) are potential claims on the freely usable currencies of International Monetary Fund members. SDRs have the ISO 4217 currency code XDR.
Definition
SDRs are defined in terms of a basket of major currencies used in international trade and finance. At present, one SDR is the sum of 0.6320 US Dollars, 0.4100 euro, 18.4 Japanese yen and 0.0903 pound sterling.
Before the introduction of the euro in 1999, the Deutsche Mark and the French franc were included in the basket. The amounts of each currency making up one SDR are determined by the IMF Executive Board in accordance with the relative importance of the currency in international trade and finance every five years.
Due to varying exchange rates, the relative value of each currency and thus its weight within the basket also varies. The definition of the SDR, with respect to the 2007 Global Finance System Crisis -- should be considered to be volatile. Currencies may be added to (or deleted from) the SDR basket pending future shocks to the global economy in order to preserve the integrity of the SDR.
Definition of 1 XDR (and approximate relative contribution)[1]
| Period |
 USD |
 DEM |
 FRF |
 JPY |
 GBP |
| 1981–1985 |
0.540 (ca. 42%) |
0.460 (ca. 19%) |
0.740 (ca. 13%) |
34.0 (ca. 13%) |
0.0710 (ca. 13%) |
| 1986–1990 |
0.452 (ca. 42%) |
0.527 (ca. 19%) |
1.020 (ca. 12%) |
33.4 (ca. 15%) |
0.0893 (ca. 12%) |
| 1991–1995 |
0.572 (ca. 40%) |
0.453 (ca. 21%) |
0.800 (ca. 11%) |
31.8 (ca. 17%) |
0.0812 (ca. 11%) |
| 1996–1998 |
0.582 (ca. 39%) |
0.446 (ca. 21%) |
0.813 (ca. 11%) |
27.2 (ca. 18%) |
0.1050 (ca. 11%) |
| Period |
USD |
 EUR |
JPY |
GBP |
| 1999–2000 |
0.5820 (ca. 39%) |
0.2280 (ca. 21%) |
0.1239 (ca. 11%) |
27.2 (ca. 18%) |
0.1050 (ca. 11%) |
| = 0.3519 (ca. 32%)[nb 1] |
| 2001–2005 |
0.5770 (ca. 45%) |
0.4260 (ca. 29%) |
21.0 (ca. 15%) |
0.0984 (ca. 11%) |
| 2006–2010 |
0.6320 (ca. 44%) |
0.4100 (ca. 34%) |
18.4 (ca. 11%) |
0.0903 (ca. 11%) |
- ^ When the euro was introduced in 1999, it simply replaced the mark and franc at the fixed conversion rate. The IMF officially quoted the amounts of converted marks and francs separately.[2]
Purpose
SDRs are used as a unit of account by the IMF and several other international organizations. A few countries peg their currencies against SDRs, and it is also used to denominate some private international financial instruments. For example, the Warsaw convention, which regulates liability for international carriage of persons, luggage or goods by air, uses SDRs to value the maximum liability of the carrier.
In Europe, the Euro is displacing the SDR as a basis to set values of various currencies, including Latvian lats. This is a result of the ERM II convergence criteria which now apply to states entering the European Union.
In Japan, JETRO and others are using the SDR to calculate ODA, official development assistance aid.
SDRs were originally created to replace Gold and Silver in large international transactions. Being that under a strict (international) gold standard, the quantity of gold worldwide is finite, and the economies of all participating IMF members as an aggregate are growing, a purported need arose to increase the supply of the basic unit or standard proportionately. Thus SDRs, or "paper gold", are credits that nations with balance of trade surpluses can 'draw' upon nations with balance of trade deficits.
So-called "paper gold" is little more than an accounting transaction within a ledger of accounts, which eliminates the logistical and security problems of shipping gold back and forth across borders to settle national accounts.
It has also been suggested that having holders of US dollars convert those dollars into SDRs would allow diversification away from the dollar without accelerating the decline of the value of the dollar.[3][4]
Other uses
SDRs are the basis for the international fees of the Universal Postal Union, responsible for the worldwide postal system.
As a spinoff from the International Postal Union value transfer rules that use the SDR (but via the International Telecommunications Union as sister UN agency) the SDRs unit of value is used to transfer roaming charge files between international mobile telecoms operators and charges for some radio communications.[citation needed]
- However, within the European Union (and Norway, Iceland and Liechtenstein), prices for roaming have been regulated with regular prices specified in Euros instead of SDR. Both the fees paid by the customers to the phone companies, and the fees paid between the companies, are regulated with amounts given in EUR.
SDRs limit carrier liability on international flights (see Montreal Convention, Warsaw Convention), as well as ship owner liability for cargo damages and oil pollution.
Banking and finance system support
SDR-denominated accounts are, in general, not available from commercial banks.
The African Development Bank's own "currency", the Units of Amount (UA) equal the SDR currency basket.
In late March 2009 Zhou Xiaochuan, governor of the People's Bank of China proposed using the SDR as a worldwide reserve currency in place of the dollar as a way to cope with the multitude of problems associated with the US Dollar and the Euro being used as world reserve currencies.[5][6][7] [8] However, independent economists point out that the SDR is unlikely to emerge as an alternative reserve currency in the foreseeable future.[9] A few of them, in fact, argue that China's proposal may be motivated by political, rather than economic, considerations.[10]
Value
The value of one SDR in terms of United States dollars is determined daily by the IMF, based on the exchange rates of the currencies making up the basket, as quoted at noon at the London market. (If the London market is closed, New York market rates are used; if both markets are closed, European Central Bank reference rates are used.)
The latest value of the SDR in terms of the US dollar is available from the IMF, updated daily.;
Potential pitfalls as a reserve currency
There are potential pitfalls of using the SDR as a reserve currency.
- The current SDR is a relatively small basket of currencies, this is both a strong point and weak point of the SDR.
- The US Dollar, Euro and UK Pound are contained in the SDR—these currencies have been losing value against a larger basket of secondary reserve currencies since the late 2000s recession started in 2007.
- The SDR does not contain the Chinese Yuan, Indian Rupee, Australian Dollar or Canadian Dollar, which are important benchmark or secondary global reserve currencies.
- The lack of global banking support for consumers (that is to say private persons and businesses) for the SDR.
- The possible loss of national sovereignty of the nations involved.[11][12]
- The potential harm of further centralization of power over monetary policy. See inflation.[11][12]
Other important externalities that have been occasionally cited by economists, but where economic research relating to these externalities may not be readily available
- China & India's (Gold/Silver/Platinum/Palladium) Physical Reserves are not equivalent in size to those of the US with respect to SDR conversion.
- The Gulf States, that is to say the Petrodollar states, have (Gold/Silver/Platinum/Palladium) Reserves that are potentially undersized for the current recessionary conditions.
- Many other nations that could move over to the SDR have (Gold/Silver/Platinum/Palladium) Reserves that are too small for the size and importance of their economies.
Recent events
No new SDRs had been created between 1981 and the 2008 banking crisis: Only 21.4 billion of them currently exist (equal in value to $31.9 billion).[citation needed] On 2 April 2009, the G-20 authorized the IMF to issue $250 billion in new SDRs to augment the foreign reserves of IMF members and quickly channel resources into emerging economies.[13] Increases in the reserves of some emerging economies will be substantial i.e. South Korea’s will grow by $3.4 billion, India’s by $4.8 billion, Brazil’s by $3.5 billion, Russia’s by $6.9 billion and China's by $7.3 billion.[14]
See also
References
- ^ Antweiler, Werner. "Special Drawing Rights: The SDR Fact Sheet". University of British Columbia. http://fx.sauder.ubc.ca/SDR.html. Retrieved 2008-04-29.
- ^ International Monetary Fund (1998-12-31). "IMF Incorporates the Euro into the SDR Valuation and Interest Rate Baskets". Press release. http://www.imf.org/external/np/sec/pr/1998/pr9867.htm. Retrieved 2009-11-14.
- ^ Special drawing rights : Here's a good way solve the dollar problem - International Herald Tribune
- ^ FT.com / Comment & analysis / Comment - How to solve the problem of the dollar
- ^ China backs talks on dollar as reserve -Russian source, Reuters, 19 March 2009
- ^ http://www.pbc.gov.cn/english/detail.asp?col=6500&id=178 People's Bank of China - Reform the International Monetary System
- ^ http://www.ft.com/cms/s/0/7851925a-17a2-11de-8c9d-0000779fd2ac.html Financial Times - China calls for new reserve currency
- ^ http://www.economist.com/finance/displayStory.cfm?story_id=13382566&source=features_box2
- ^ China's super currency call may not float by Venkatesan Vembu, Daily News & Analysis, 26 March 2009
- ^ 'China cannot really dump the dollar', an interview with Michael Pettis, by Venkatesan Vembu, Daily News & Analysis, 13 July 2009
- ^ a b http://www.ronpaul.com/2009-04-03/ron-paul-global-reserve-currency-is-good-as-long-as-its-gold/
- ^ a b Rothbard, Murray N. (1990), What Has Government Done to Our Money?, Ludwig von Mises Institute, ISBN 0945466102
- ^ Special Drawing Right (SDR) via Wikinvest
- ^ Held in Reserve, The Economist
External links
Recent discussions about SDR in the mass media:
