Context: Recently, International Monetary Fund (IMF) has increased the allocation of Special Drawing Rights (SDR) to India in line with the existing quota of India in the fund.
- This allocation is about 2.75 per cent of the overall 456.5 billion SDRs general allocation made to the Fund's member countries. IMF has a membership of 190 countries.
About SDR
- It is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries.
- SDR holdings is one of the components of the foreign exchange reserves (FER) of a country.
- It can be freely exchanged between the member countries instead of relying on currency of any one particular country.
- IMF makes the general SDR allocation to its members in proportion to their existing quotas in the Fund.
- SDR is neither a currency nor a claim on the IMF.
- It is a potential claim on freely usable currencies of the member countries.
- It serves as the unit of account for IMF and other international organizations.
How SDR value is determined?
- Currency value of the SDR is calculated by summing the values of SDR basket of currencies in U.S. dollars on the basis of market exchange rates.
- It is calculated daily (except on IMF holidays or when IMF is closed for business). The valuation basket of SDR is reviewed and adjusted every five years.
SDR basket of currencies
- SDR basket comprises of U.S. dollar, Euro, Japanese yen, pound sterling and Chinese renminbi.
International Monetary Fund (IMF)
- IMF is an organization comprising of 189 member countries.
- Each member is having representation on the IMF’s executive board in proportion of their financial importance.
- Thus, most powerful countries in global economy have the most voting power.
- IMF was conceived in July 1944 at a UN conference in Bretton Woods, United States.