Special Drawing Rights

Special Drawing Rights
Name	Special Drawing Rights
Issuer	International Monetary Fund
Introduced	1969
Using countries	IMF member countries
Peg to	basket of United States dollars, euro, renminbi, yen, pound sterling
Inflation rate	N/A

Special Drawing Rights

Special Drawing Rights are international reserve assets created by the International Monetary Fund in 1969 to supplement official reserves of member countries. They function as a potential claim on the freely usable currencies of IMF members and serve as a unit of account for the IMF, central banks, and some international organizations. The instrument emerged amid discussions involving actors such as John F. Kennedy, Richard Nixon, and policymakers from United Kingdom and France and has evolved alongside institutions like the Bank for International Settlements and treaties such as the Bretton Woods Conference arrangements.

History

The creation of Special Drawing Rights followed deliberations at the Bretton Woods Conference aftermath and proposals by economists linked to John Maynard Keynes schools and officials from the United States Department of the Treasury and Bank of England. The 1960s liquidity concerns during negotiations involving Lyndon B. Johnson, Charles de Gaulle, and finance ministers of West Germany prompted the IMF Board and the International Monetary Fund membership to institute SDRs in 1969. Subsequent milestones include the 1971 collapse of the Bretton Woods system under Richard Nixon, the 1978 Second Amendment of the IMF Articles negotiated during sessions attended by delegates from Japan and Italy, and major allocations coinciding with global events such as the Global Financial Crisis and COVID-19 pandemic where leaders from Angela Merkel-era Germany, Emmanuel Macron, and officials from the People's Bank of China engaged in reform discussions.

Composition and Valuation

The value of the unit is determined by a currency basket administered by the IMF Board and influenced by member country policies from jurisdictions like the United States, European Union, People's Republic of China, Japan, and the United Kingdom. The valuation methodology has been updated following input from central bankers at the European Central Bank, the Federal Reserve System, and the Bank of Japan to include currencies such as the euro and the renminbi after consultations involving the World Bank and the Group of Twenty. The IMF reviews the basket periodically using criteria informed by data from the International Financial Statistics and guidance from committees including representatives from Canada, Australia, India, and Brazil.

Allocation and Distribution

Allocations of the asset are decided by the IMF Board of Governors, where voting shares reflect quotas linked to countries including United States, Japan, China, Germany, and France. Distributions occur to IMF members according to quota-based shares, shaped by governance debates involving blocs like the G-7, the G-20, and regional groups such as the African Union and Association of Southeast Asian Nations. Notable allocations were approved in response to crises with advocacy by leaders from South Africa, Mexico, Indonesia, and Argentina to address reserve shortfalls and liquidity constraints.

Uses and Functioning

Holders can exchange the asset for freely usable currencies through voluntary arrangements with other IMF members or via IMF-designated mechanisms involving institutions such as the Bank for International Settlements and national central banks like the Bank of England and the Federal Reserve Bank of New York. The unit is used as the IMF's unit of account in financial statements, in operations with organizations including the World Bank and regional development banks like the Asian Development Bank and the Inter-American Development Bank, and as part of bilateral reserve management by central banks of Russia, Saudi Arabia, and Turkey. Operational features have intersected with instruments from International Monetary Fund lending facilities, swap lines brokered by the Federal Reserve, and proposals by policymakers in institutions like the International Monetary Fund Executive Board.

Governance and Reform

Governance of the asset rests with the IMF governance framework, involving quota reviews, voice reforms, and voting realignment that have been championed by coalitions including India, Brazil, and South Africa and resisted at times by representatives from United States and European Union members. Reform discussions have intersected with broader debates at forums such as the G-20 Summit, the IMF–World Bank Annual Meetings, and policy proposals advanced by economists associated with Nobel Prize in Economics laureates and think tanks in Washington, D.C. Reforms have considered issuer inclusion, allocation size, and links to development agendas promoted by entities like the United Nations and African Development Bank.

Criticisms and Controversies

Critics including scholars from Harvard University, London School of Economics, and policy analysts from Chatham House argue that allocations can entrench existing quota imbalances favoring countries like the United States and Japan and may insufficiently address liquidity needs of low-income members represented by International Monetary Fund constituency groups from Nepal and Mozambique. Debates over conditionality, perceived politicization, and distribution mechanisms have involved interventions by figures from European Commission, former finance ministers of Greece and Iceland, and advocacy by NGOs active in Oxfam campaigns. Controversy has also arisen around proposals to expand the asset into a broader global reserve discussed at meetings attended by representatives from China, Russia, and Brazil, and legal scholars from Yale University and Columbia University have raised governance and sovereignty concerns.

Category:International Monetary Fund