Special Drawing Rights

Special Drawing Rights

News: Recently, the International Monetary Fund lifted the yuan’s weighting in the Special Drawing Rights currency basket, prompting the Chinese central bank to pledge to push for a further opening of its financial markets.

About:
• The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.
• The SDR serves as the unit of account of the IMF and some other international organizations.
• The currency value of the SDR is determined by summing the values in US dollars, based on market exchange rates, of a SDR basket of currencies.
• The SDR basket of currencies includes the US dollar, Euro, Japanese yen, pound sterling and the Chinese renminbi (included in 2016).
• The SDR currency value is calculated daily (except on IMF holidays or whenever the IMF is closed for business) and the valuation basket is reviewed and adjusted every five years.

Quota:
• It means the amount contributed to the IMF of a country is denominated in SDRs.
• Members voting power is related directly to their quotas.
•  IMF makes the general SDR allocation to its members in proportion to their existing quotas in the IMF.
• Presently, India holds 2.75% of SDR quota, and 2.63% of votes in the IMF.
• India’s foreign exchange reserves also incorporate SDR other than gold reserves, foreign currency assets and Reserve Tranche in the IMF.