What are Special Drawing Rights (SDRs)?
Special Drawing Rights (SDRs) are an international reserve asset created by the (IMF) to supplement the official foreign exchange reserves of its member countries. SDRs are not a currency and not a claim on the IMF. They represent a potential claim on freely usable currencies of IMF members.
Why were SDRs created?
SDRs were created in 1969 to address:
- Shortage of global liquidity under the Bretton Woods system
- Need for additional international reserves without relying solely on gold or US dollars
How SDRs Work
- SDRs are allocated to IMF member countries in proportion to their IMF quotas.
- A country can exchange SDRs for freely usable currencies (USD, EUR, GBP, JPY, CNY) with other IMF members.
- SDR holdings appear on the asset side of a country’s central bank balance sheet.
SDR Valuation (SDR Basket)
The value of an SDR is based on a basket of five major currencies, reviewed every five years:
| Currency | Included Since |
| US Dollar (USD) | Founding member |
| Euro (EUR) | 1999 |
| Chinese Yuan (CNY) | 2016 |
| Japanese Yen (JPY) | Long-standing |
| British Pound (GBP) | Long-standing |
This basket reflects the relative importance of currencies in global trade and finance.
Interest on SDRs
- SDRs earn interest if held
- Countries pay interest if they use SDRs beyond their allocation
- Interest rate is based on a weighted average of short-term interest rates of basket currencies
Key Features of SDRs
- International reserve asset
- Allocated, not earned
- Unconditional liquidity
- Used only by governments and central banks
- Not used by private individuals or firms
SDRs vs IMF Loans
| Aspect | SDRs | IMF Loans |
| Nature | Reserve asset | Credit/loan |
| Conditionality | None | Yes |
| Repayment | Not required | Mandatory |
| Purpose | Liquidity support | Balance of payments support |
India and SDRs
- India receives SDR allocations in proportion to its IMF quota.
- SDRs form part of India’s foreign exchange reserves, along with:
- Foreign Currency Assets (FCA)
- Gold
- Reserve Tranche Position (RTP)
During global crises (e.g., COVID-19), SDR allocations helped countries boost reserves without increasing debt.
SDRs in Global Crises
- 2009: Large SDR allocation after the global financial crisis
- 2021: Historic allocation of USD 650 billion to support pandemic-hit economies
