Special drawing rights

A special drawing right allows a member country of the IMF to obtain surplus currency held by another member country.

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.

Recommended

Modern monetary theory (MMT)
Glossary

Modern monetary theory (MMT)

Modern Monetary theory, or MMT, has become popular on the left, both in the UK and abroad. (Wags say that it stands for "magic money tree".) 
21 Sep 2020
Price to sales ratio
Glossary

Price to sales ratio

A company's market cap divided by the company's annual sales (or revenue) gives us the price/sales ratio.
28 Aug 2020
Too embarrassed to ask: what is a p/e ratio?
Too embarrassed to ask

Too embarrassed to ask: what is a p/e ratio?

Find out how to use the price/earnings ratio (p/e ratio for short) – a useful starting place for investors looking to value a company.
26 Aug 2020
Stock split
Glossary

Stock split

A stock split increases the number of a corporation's issued shares by dividing each existing share.
21 Aug 2020

Most Popular

Oil producers are back at their Covid-19 lows – is it time to buy?
Oil

Oil producers are back at their Covid-19 lows – is it time to buy?

With demand for oil hammered by Covid-19 and talk of “peak oil demand”, there are lots of good reasons to be bearish on oil producers. So, asks John S…
22 Sep 2020
Why you should stuff your end-of-pandemic portfolio with Chinese stocks
China stockmarkets

Why you should stuff your end-of-pandemic portfolio with Chinese stocks

For an end-of-pandemic portfolio, you need assets that can cope with today’s volatility. And that, says Merryn Somerset Webb, means Chinese stocks.
14 Sep 2020
IAG's share price is ready for take-off - here's how to play it
Trading

IAG's share price is ready for take-off - here's how to play it

The owner of British Airways has had a turbulent year, but is now worth a punt. Matthew Partridge explains the best way to play it.
8 Sep 2020