Special Drawing Rights (SDR)
Candlefocus EditorThe allocation of SDRs is based on the quota amounts of each member country. In general, stronger economies have higher quotas, when it comes to providing currency liquidity to countries in need of aid. Allocated SDRs are distributed to members as part of the IMF’s policy of promoting global financial stability.
Apart from assisting financially weakened nations, SDRs can also be used to pay interests on loans and increase quotas in the IMF. They can also act as a supplement to other reserve assets held by members, allowing them more control over their currency exchange rates and foreign exchange reserves. SDRs can also be used in place of other reserve assets for certain transactions, and are favored because they are easier to move between currencies than physical currencies.
The SDR rate (SDRi) is a key factor in determining the interest rate that must be paid by members when borrowing from the IMF and the interest rate payable to members for their ‘remunerated creditor positions’ in the IMF.
SDRs play an important role in promoting financial stability around the world. They are a valuable tool used by governments and central banks to manage their global currency affairs, facilitate international payments, and ensure strong relationships between nations.