What is Special Drawing Rights (SDR) – Special Drawing Rights (SDR) was produced by the IMF in 1969; it was created as a supplementary reserve asset, it is responsible for the fixed exchange rate of Breton Woods. The companies or countries want to do business with it must need to have the official reserves, the government and central bank of that country need to have the gold, which is acceptable in the foreign currencies. The country needs to maintain the reserve assets in the reserve market, it can be called as an international reserve asset under the IMF (Imf.org, 2016).
Special Drawing Rights (SDR) is based on the international currencies, in the currency euro, U.S dollars, Japanese Yen and pounds sterling are included, there are daily updates on the website of IMF, the SDR is posted every day in the U.S dollar value. In the system, there are financial trading systems across the world. Therefore, basket composition is revised by the Executive board, after every five years, however, there could be no problems and in order to ens
ure the importance of the world currencies. The SDR interest rate can be calculated based on the interest rate, which is paid by the members on the IMF loans. However, the SDR interest rate can be determined weekly and can be based on the weighted average of the representative, interest rate.
The Special Drawing Rights (SDR) have the allocations to the IMF members, as there are the two kinds of the allocations, the general allocation of SDR and the special allocation of SDR. The general allocations have the long-term global needs, which are the supplements to the existing reserve assets. However, the special allocation of SDR is based on the special one-time allocation, the purpose this special allocation is to enable the members of IMF, so they can participate in SDR system and they can be served on the equitable basis.
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Reference:
- Imf.org. (2016, September 30). Special Drawing Right SDR. Retrieved October 1, 2016, from https://www.imf.org/external/np/exr/facts/sdr.htm