Special Drawing Rights

Special Drawing Rights (SDRs) is a potential claim on the freely usable currencies of International Monetary Fund members. SDRs have the ISO 4217 currency code XDR.

Definition

SDRs are defined in terms of a basket of major currencies used in international trade and finance. At present, the currencies in the basket are the euro, the pound sterling, the Japanese yen and the United States dollar. Before the introduction of the euro in 1999, the Deutsche mark and the French franc were included in the basket. The amounts of each currency making up one SDR are chosen in accordance with the relative importance of the currency in international trade and finance. The determination of the currencies in the SDR basket and their amounts is made by the IMF Executive Board every five years.

The exact amounts of each currency in the basket, and their approximate relative contributions to the value of an SDR, in the past were and currently are: [cite web |url=http://fx.sauder.ubc.ca/SDR.html |title=Special Drawing Rights: The SDR Fact Sheet |accessdate=2008-04-29 |format=HTML |publisher=University of British Columbia |first=Werner |last=Antweiler ]

Purpose

SDRs are used as a unit of account by the IMF and several other international organizations. A few countries peg their currencies against SDRs, and it is also used to denominate some private international financial instruments. For example, the Warsaw convention, which regulates liability for international carriage of persons, luggage or goods by air uses SDRs to value the maximum liability of the carrier.

In Europe, the Euro is displacing the SDR as a basis to set values of various currencies, including Latvian lats. This is a result of the ERM II convergence criteria which now apply to states entering the European Union.

SDRs basically were created to replace gold in large international transactions. Being that under a strict (international) gold standard, the quantity of gold worldwide is relatively fixed, and the economies of all participating IMF members as an aggregate are growing, a perceived need arose to increase the supply of the basic unit or standard proportionately. Thus SDRs, or "paper gold", are credits that nations with balance of trade surpluses can 'draw' upon nations with balance of trade deficits.

So-called "paper gold" is little more than an accounting transaction within a ledger of accounts, which eliminates the logistical and security problems of shipping gold back and forth across borders to settle national accounts.

Joseph Stiglitz has argued that usage by central banks of SDRs as foreign exchange reserve could be viewed as the prelude to the creation of a single world currency. [cite book |authorlink=Joseph Stiglitz |ISBN=0-393-06122-1 |title=Making Globalization Work |pages=261-263 |publisher=Penguin Books |first=Joseph |last=Stiglitz | year=2006 ] It has also been suggested that having holders of US dollars convert those dollars into SDRs would allow diversification away from the dollar without accelerating the decline of the value of the dollar. [ [http://www.iht.com/articles/2004/02/12/edwade_ed3_.php Special drawing rights : Here's a good way solve the dollar problem - International Herald Tribune ] ] [ [http://www.ft.com/cms/s/0/75cb5f2e-a729-11dc-a25a-0000779fd2ac.html FT.com / Comment & analysis / Comment - How to solve the problem of the dollar ] ]

Other uses

SDRs are the basis for the international fees of the Universal Postal Union, responsible for the world-wide postal system.As a spinoff from the postal services, SDRs are also used to transfer roaming charge files between international mobile telecoms operators and charges for some radio communications.Fact|date=August 2008

SDRs limit carrier liability on international flights (see Montreal Convention, Warsaw Convention), as well as ship owner liability for [http://www.imo.org/Conventions/contents.asp?doc_id=664&topic_id=256 cargo damages] and [http://www.imo.org/Conventions/contents.asp?doc_id=660&topic_id=256 oil pollution] .

Value

The value of one SDR in terms of United States dollars is determined daily by the IMF, based on the exchange rates of the currencies making up the basket, as quoted at noon at the London market. (If the London market is closed, New York market rates are used; if both markets are closed, European Central Bank reference rates are used.)

The latest value of the SDR in terms of the US dollar is available from [http://www.imf.org/external/np/tre/sdr/basket.htm the IMF] , updated daily.

ee also

* Digital gold currency
* World Currency Unit

References

External links

* [http://www.imf.org/external/np/exr/facts/sdr.htm FAQ: What is an SDR?]
* [http://www.imf.org/external/np/fin/data/rms_sdrv.aspx The U.S. dollar-value of the SDR is posted here daily.]
* [http://fx.sauder.ubc.ca/SDR.html Special Drawing Rights fact sheet]