The special drawing rights reserve (SDR) was created by the International Monetary Fund (IMF) in 1969. It is designed to supplement the existing official reserves of member countries. But what is it?
As the IMF states, the SDR is “neither a currency nor a claim on the IMF”. Multiple currencies are held all around the world in many different countries – so, for example, not all of the sterling in the world is held in Britain. So an SDR allows a member of the IMF to obtain surplus currency held by another IMF member. This can be arranged by agreement.
Alternatively, the IMF can designate members with strong external positions (current account surpluses) to buy SDRs from members with much weaker positions to release the currency that they need to meet their external obligations and payments. The value of an SDR is based on a basket of currencies – the euro, yen, sterling and the US dollar – and carries an interest rate. The US dollar value of the SDR is available every day on the IMF website.