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Special Drawing Right

What is a Special Drawing Right (SDR), and what is it used for?

In 1969 the International Monetary Fund created the SDR (Special Drawing Right), an artificial currency unit defined as a basket of national currencies. The SDR is used as an international reserve asset, to supplement members' existing reserve assets (official holdings of gold, foreign exchange, and reserve positions in the IMF). The SDR is the IMF's unit of account: IMF voting shares and loans are all denominated in SDRs. The SDR serves as the unit of account for a number of other international organizations, including the WB. Four countries maintain a currency peg against the SDR. Some private financial instruments are also denominated in SDRs.

What is the value of an SDR?

Initially, the value of the SDR was defined in terms of one US-$, which in turn was defined in terms of an ounce of gold: $35/oz until 18-Dec-1971; $38/oz between 18-Dec-1971 and 11-Feb-1973; $42.22/oz between 12-Feb-1973 and 30-Jun-1974. Since July 1974 the SDR has been defined in terms of a basekt of currencies. This basket consisted initially of 16 currencies and was reduced to 5 in 1981. Every five years the IMF determines which five currencies will enter the basket, and which weight will be applied to each currency. The exchange rates used by the IMF to calculate the official SDR are the noon rates in the London foreign exchange market. When the London market is closed, noon rates in the New York market are used, and Frankfurt fixing rates are employed when the New York market is also closed. The table below shows the composition of the SDR effective Jan/01-Dec/05:

ISO 4217 Currency Weight Value
USD US Dollar 44% $ 0.5770
EUR Euroland Euro 31% E 0.4260
JPY Japanese Yen 14% ? 21.0
GBP British Pound 11% _ 0.0984

How can one calculate the value of an SDR?

To calculate the value of the SDR in national currency (say, ABC), multiply the four exchange rates of the home country vis-?-vis the basket-currency countries (i.e., ABC/USD, ABC/EUR, ABC/JPY, and ABC/GBP) with the basket values indicated in the above table. Add these four numbers together to obtain the ABC/SDR exchange rate.

What is today's value of the SDR?

The International Monetary Fund prepares a daily web page with today's SDR valuation.


Links: today's SDR valuation.