This presentation explains contents of SDR Advantages and Disadvantages of SDR

1. SPECIAL
DRAWING
RIGHTS
(Supplementary foreign exchange
reserve assets)

2. The Special Drawing Rights (SDRs) are
basically a combination of multiple
currencies.
This means that the IMF has its own reserve
which has multiple currencies.
Based on the value of these reserves,
the IMF creates and distributes
Special Drawing Rights (SDRs).

3. 4 major currencies
 Each unit of Special Drawing Rights (SDRs)
involves of 4 major currencies.
The Special Drawing Rights (SDRs) derives
 44% of its value from the U.S. Dollar
 34% from the Euro
 11% from the Japanese Yen and
 11% from the Pound Sterling.

4. History of SDR
 Special drawing rights were created by the IMF in
1969.
 SDRs were created through the I Amendment to the
Fund Articles of Agreement in 1969.
 With the II Amendment to the Fund Articles of
Agreement in 1978, SDR becomes the Unit of
account for the IMF has been its primary purpose
since 1972.

5. SDR
 It is an international reserve asset or artificial
currency created by IMF in 1969
 To supplement the existing official reserves of
members
 It serves as a unit of account in IMF
 Value of SDR in now based on “basket of key” in
international currencies
 SDR is not a right on IMF but a potential right on
the currencies of IMF members
 Two ways to obtain currencies using SDR
- Voluntary exchange
- Involving IMF

6. 1SDR = Rs. 97.81
(Indian rupees)
IMF has an SDR department which handles
the SDR transactions among member nations
Members having larger holdings of SDR than
their quota will get interest rate
Exchange rates of SDR are published daily
except on IMF holidays or whenever the IMF is
closed for business

7. SDR or Paper Gold
 It is an unconditional reserve assets to
influence the level of world reserves in order to
solve the problem of international liquidity.
 Special drawing rights (SDRs) are supplementary
foreign exchange reserve assets defined and
maintained by the IMF
SDR is not a currency
 SDRs instead represent a claim to currency
(artificial currency) held by IMF member
countries for which they may be exchanged. As they
can only be exchanged for Euros, Japanese yen, pounds
sterling, or US dollars

8. Advantages
 SDRs are used as a means of payment towards
BOP deficits.
 On the application of the needy country, the IMF
defines a participating country with strong BOP in
the SDR scheme
 The IMF acts like a clearing house between the
Central Banks of the participating countries.
 Participants pay charges in SDRs for the use of the fund
resources. They also repurchase their own currency
from it
 The IMF allows sales of SDR for currency by
agreement with another participant

9. Disadvantages
 The SDR provided by the IMF to its members is based on
their subscription quota.
 The shares of developed countries are higher, the major
portion of SDRs is available to them, this is unfair.
 The share of SDR and its benefits for less developed
countries is comparatively lower.
 IMF restricts the borrowing capacity of less developed
countries.
 This scheme was intended to save only the dollar crisis.
Subsequently, the linkage of SDR value with the basket of
world’s major currency was again intended to safeguard
the U.S dollar