SDRs were created in 1969 to supplement a shortfall of preferred foreign exchange reserve assets, namely gold and U.S.
The word "reserve" was later replaced with "special" because the idea that the IMF was creating a foreign exchange reserve asset was contentious. ==History== Special drawing rights were created by the IMF in 1969 and were intended to be an asset held in foreign exchange reserves under the Bretton Woods system of fixed exchange rates.
After the collapse of that system in the early 1970s the SDR has taken on a less important role.
Acting as the unit of account for the IMF has been its primary purpose since 1972. The IMF itself calls the current role of the XDR "insignificant".
dollar (as equivalent to 0.888671 grams of fine gold), but this was abandoned in favor of a currency basket after the 1973 collapse of the Bretton Woods system of fixed exchange rates. From July 1974 to December 1980, the XDR basket consisted of 16 currencies.
dollar (as equivalent to 0.888671 grams of fine gold), but this was abandoned in favor of a currency basket after the 1973 collapse of the Bretton Woods system of fixed exchange rates. From July 1974 to December 1980, the XDR basket consisted of 16 currencies.
During this first round of allocations, 9.3 billion XDRs were distributed to IMF member countries. The XDR resurfaced in 1978 when many countries were wary of taking on more foreign exchange reserve assets denominated in U.S.
When substitution was proposed before, in 1978, the United States appeared reluctant to allow such a mechanism to become operational. === Use by developing countries === In 2001, the UN suggested allocating XDRs to developing countries for use by them as cost-free alternatives to building foreign exchange reserves through borrowing or running current account surpluses.
In 2009, an XDR allocation was made to countries that had joined the IMF after the 1979–1981 round of allocations was complete (and so had never been allocated any).
dollar (as equivalent to 0.888671 grams of fine gold), but this was abandoned in favor of a currency basket after the 1973 collapse of the Bretton Woods system of fixed exchange rates. From July 1974 to December 1980, the XDR basket consisted of 16 currencies.
While the name would offend neither side, it can be argued that prior to 1981 the XDR was a debt security and so a form of credit.
As the reconstitution provisions were abrogated in 1981, the XDR now functions less like credit than previously.
From January 1981 until the birth of the euro, the basket consisted of only five currencies: the U.S.
This is a substantial decrease from 1983, when 14 countries had XDR pegs.
First proposed in 1997, many of the beneficiaries of this 2009 allocation were developing countries. == Value definition == ===Currency basket=== The IMF takes into account the value of several currencies important to the world’s trading and financial systems.
When the euro was introduced in January 1999, it replaced the German mark and French franc; the basket consisted of the U.S.
As of 2000, the number of countries that did so was four.
When substitution was proposed before, in 1978, the United States appeared reluctant to allow such a mechanism to become operational. === Use by developing countries === In 2001, the UN suggested allocating XDRs to developing countries for use by them as cost-free alternatives to building foreign exchange reserves through borrowing or running current account surpluses.
In 2003, the Bank for International Settlements ceased to use the gold franc as their currency, in favour of XDR. Some bonds are also denominated in SDR, like the IBRD 2016 SDR denominated bonds. === Use in international law === In some international treaties and agreements, XDRs are used to value penalties, charges or prices.
This suspicion of the dollar precipitated an allocation of 12 billion XDRs over a period of four years. Concomitant with the financial crisis of 2007–08, the third round of XDR allocations occurred in the years 2009 and 2011.
The number of SDRs in existence was around XDR 21.4 billion in August 2009.
During the global financial crisis of 2009, an additional XDR 182.6 billion was allocated to "provide liquidity to the global economic system and supplement member countries’ official reserves".
This suspicion of the dollar precipitated an allocation of 12 billion XDRs over a period of four years. Concomitant with the financial crisis of 2007–08, the third round of XDR allocations occurred in the years 2009 and 2011.
In 2009, an XDR allocation was made to countries that had joined the IMF after the 1979–1981 round of allocations was complete (and so had never been allocated any).
First proposed in 1997, many of the beneficiaries of this 2009 allocation were developing countries. == Value definition == ===Currency basket=== The IMF takes into account the value of several currencies important to the world’s trading and financial systems.
For example, during the global financial crisis of 2009, XDR 182.6 billion was allocated to "provide liquidity to the global economic system and supplement member countries’ official reserves".
As of January 2011, XDRs represented less than 4% of global foreign exchange reserve assets.
This suspicion of the dollar precipitated an allocation of 12 billion XDRs over a period of four years. Concomitant with the financial crisis of 2007–08, the third round of XDR allocations occurred in the years 2009 and 2011.
For example, the United States has 16.7% of the vote as of March 2, 2011. Allocations are not made on a regular basis and have only occurred on rare occasions.
The 2011 allocations were to low-income member countries. == Exchange == An IMF member country that requires actual foreign currency may sell its SDRs to another member country in exchange for the currency.
By October 2014, the number of SDRs in existence was XDR 204 billion.
In the review conducted in November 2015, the IMF decided to add the Renminbi (Chinese yuan) to the basket, effective 1 October 2016.
As of 2015, XDRs may only be exchanged for euros, Japanese yen, UK pounds, or US dollars.
In the review conducted in November 2015, the IMF decided to add the Renminbi (Chinese yuan) to the basket, effective 1 October 2016.
Since 1 October 2016, the XDR basket has included the Chinese renminbi. This basket is re-evaluated every five years, and the currencies included as well as the weights given to them can then change.
In 2003, the Bank for International Settlements ceased to use the gold franc as their currency, in favour of XDR. Some bonds are also denominated in SDR, like the IBRD 2016 SDR denominated bonds. === Use in international law === In some international treaties and agreements, XDRs are used to value penalties, charges or prices.
In March 2021 the G24 and others proposed an allocation of $500B for this purpose. The value of a SDR is based on a basket of key international currencies reviewed by IMF every five years.
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