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Special Drawing

Rights
(SDRs)
By Gopika Kondath 1512362
Nivedha Vaideeswaran
1512345
Contents
IMF quick facts
Definition
Purpose
Structure
Pros & cons
Trends
Current rates and Valuation
Top Stories
ITERNATIONAL MONETARY FUND
(IMF)
The International Monetary fund (IMF) is an organization of
188 countries, created in 1945.
AIMS
Promote international monetary cooperation.
Facilitate the balanced growth of international trade.
Promote employment, sustainable economic growth.
Headquartered in Washington D.C, with 24 Directors at the
Executive Board.
Definition
Special Drawing rights (SDR) are the monetary unit of the
reserve assets of the International Monetary Fund (IMF).
The unit was created in 1969 in support of the Bretton
Woods system of fixed exchange rates to alleviate the
shortage of U.S dollar and gold reserve in the expansion of
international trade.
The SDR unit is defined as a weighted sum of contributions
of four major currencies, re-evaluated and adjusted every
five years, and computed daily in terms of the USD.
The currencies are-U.S. dollars ($), euro (), pounds sterling
(), Japanese yen ().
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.
Inthe Euro Zone, the Euro is displacing the SDR as a basis to
set values of various currencies, including the Latvian Lats.
SDRs were originally created to replace gold and silver in
large international transactions and provide cost free
alternative to member states for building reserves.
Structure of the SDR
The IMF is responsible for all transactions, i.e. the IMF acts as a broker.
2 types of SDR transactions:
(a) Voluntary : Transactions take place with a voluntary counterparty.
(b) Designation: In case no voluntary counterparty can be found, the IMF
designates the counterparty.
2 Types of allocation:
(a) General: Based on long term need to increase existing reserve assets.
(b) Specific: ensure all members of IMF the relative same amount of
SDRs, since countries join the IMF at different times.
Structure of SDRs (continued)
SDRs are equal to a basket of 4 currencies with fixed amounts, however
due to changing FX rates the relative weightings change with last time.
If a country has more SDRs than allocated by the IMF it receives SDR
interest from the IMF, and if a country has less SDRs than allocated by
the IMF, it has to pay interest to the IMF.
No Bid/offer spread
IMF calculates SDR interest rates on an weekly basis.
Interest rates calculated on the basis of 3 months Eurepo, 3 months
Japanese Treasury Discount Bills, 3 months UK treasury bills and 3
months U.S Treasury Bills.
Pros & Cons
PRO SDR CONTRA SDR

Stable( due to basket of


Liquidity
currencies, i.e. diversified Shifting the problem from the USD to
reserves) the SDRs.

No exorbitant privilege for the Advantage of SDR over a diversified


reserve basket.
USA
Contains only 4 currencies.
A way of developing countries
(w/ weak currencies ) Geopolitical risks
IMF voting power
Less risk for countries while
lending Limited no. of currencies
Current Rates
The regularly updated rates of the SDR will be displayed on
the IMF website.
Valuation
The valuation can be viewed on the IMF website.
Top Stories About The SDR
IMF SDR review set to boost SSA demand for RMB pro
ducts, hedging
A positive outcome to this year's review by the International
Monetary Fund (IMF) of the potential inclusion of the
renminbi into its Special Drawing Rights (SDR) facility could
give a boost to interest in the currency from sovereigns,
supranationals and agencies (SSAs), say market participants.
Meanwhile, the IMF review is progressing, with the
multilateral busy gathering data on trading flows.
Top Stories (continued)
Renminbi
SDR inclusion still debated, but benefits could go both ways
The inclusion of the renminbi in the International Monetary Fund's
Special Drawing Rights (SDR) currency basket in the next SDR review
later this year is by no means a foregone conclusion. But much
progress has been made, according to participants at the Offshore
RMB conference organised by market body Asifma this week in Hong
Kong.
RMB fits the bill for SDR inclusion, say analysts
The International Monetary Fund (IMF) could give the RMB a much
needed credibility boost this year by including it in its special drawing
rights (SDR) facility.
Thank You