SDR AND ITS USES

Introduction
SDRs are reserve assets created by the International Monetary Fund (IMF) in 1969. SDRs are allocated to IMF member countries in proportion to their quotas, which are based on a countrys relative weight in the global economy.

The value of SDRs is derived from a mix of four major currencies: the U.S. dollar, the Euro, the Japanese yen, and the U.K. pound.

 After the collapse of Bretton woods system in the early 1970s the SDR has taken on a far less important role. Acting as the IMF's unit of account has been its primary purpose since 1972. Even though SDRs were created in 1969 during a shortage of both dollars and gold, but they have been used more recently in response to the global financial and economic crisis that struck in2008.
The SDR is also the unit of account for IMF operations and transactions and serves a similar function in a number of other international and regional organizations and conventions.

 To a limited extent, it has also been used to denominate financial instruments created outside the IMF by the private sector (private SDRs). SDR is created to supplement a shortfall of preferred foreign exchange reserve assets, namely gold and the US dollar. The SDR's value is defined by a weighted currency basket of four major currencies: the Euro, the US dollar, the British pound, and the Japanese yen.

 Since 1981, the currencies of five countriesFrance; Germany; Japan; the United Kingdom and the united States- have been included in the basket.

With the introduction of the euro on January 1, 1999, the currency amounts of the deutsche mark and the French franc were replaced with equivalent amounts of Euros.
This basket is re-evaluated every five years, and the currencies included as well as the weights given to them can then change.

 SDRs are allocated to countries by the IMF. Private parties do not hold or use them. As of March 2011, the amount of SDRs in existence is around XDR 238.3 billion, but this figure is expected to rise to XDR 476.8 billion by 2013. In the last review of the SDR valuation and interest rate baskets, the SDR is the sum of the values of the following accounts of each currency. U.S. dollar 0.577 Euro 0.426 Japanese yen 21.0 Pound sterling 0.0984

USES OF SDRs
IMF members may use SDRs in a variety of voluntary transfers. Transactions are facilitated by arrangements between the IMF and 12 member countries that are prepared to buy or sell SDRs for one or more freely usable currencies, provided that their SDR holdings remain within certain limits. These arrangements have helped to ensure the liquidity of the SDR system. SDRs can be used in such operations as forward purchases and sales and in swaps, to settle financial obligations, to make loans and donations, and as security for the settlement of financial obligations.

 Members may also use SDRs to discharge their financial obligations to the IMF in the General Resources Account. These obligations mainly take the form of charges levied on members use of IMF resources, repurchases (repayments), and quota subscriptions.

The IMF has been criticized severely in recent past. For one thing ,the IMF conditionality granting loans has been highly controller conditionality refers to a series of structural adjustments & stabilization policies sought to be placed on the economies of receiving countries.