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Special Drawing Rights (SDR)

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Special Drawing Rights (SDR) are a special drawing privilege granted to certain countries to reflect their unique economic circumstances. This privilege allows these countries to draw additional allocations of International Monetary Fund (IMF) quota shares beyond their normal quota entitlement.

Here’s a breakdown of key points regarding SDRs:

Participating countries:

  • As of October 2023, there are 10 countries that have been granted SDRs.
  • These countries are mostly ex-colonial territories that have historically faced economic disadvantages due to their dependence on former colonizers.
  • Some notable examples include Algeria, Cameroon, Ghana, Kenya, and South Korea.

Additional allocations:

  • SDRs provide additional allocations of quota shares in proportion to the country’s SDR entitlement.
  • These additional allocations are in addition to the country’s normal quota entitlement based on its GDP and other factors.
  • The purpose of this allocation is to provide greater access to IMF resources for these countries.

Eligibility:

  • To be eligible for SDRs, a country must meet certain criteria, including:
    • Having a “colonial or neo-colonial dependence on one or more of the principal members of the IMF.”
    • Having an “unbalanced payment position” with the IMF.
    • Having a “heavy debt burden.

Impact:

  • SDRs have significantly increased the voting power of some countries, giving them greater influence in the IMF.
  • This has been controversial, as some argue that it undermines the IMF’s ability to represent all member states fairly.
  • Additionally, SDRs have influenced the distribution of IMF resources, with some countries receiving more financial assistance than others.

Recent developments:

  • In September 2023, Argentina requested the cancellation of its SDRs, citing concerns about their potential to undermine the IMF’s weighting system.
  • This move has sparked debate about the future of SDRs and their potential impact on the IMF.

Overall:

Special Drawing Rights are a controversial mechanism within the IMF that aims to address the unique economic challenges faced by certain countries. While they have increased the voting power and access to resources for these countries, they have also raised concerns about fairness and potential manipulation within the IMF.

FAQs

  1. What is meant by Special Drawing Rights (SDRs)?

    Special Drawing Rights (SDRs) are an international reserve asset created by the International Monetary Fund (IMF) to supplement the official reserves of its member countries. SDRs are not a currency but can be exchanged among governments for freely usable currencies like the US dollar or euro.

  2. What are the 5 currencies in the SDR?

    The SDR is valued based on a basket of five major currencies: the US dollar, the euro, the Chinese yuan, the Japanese yen, and the British pound sterling. These currencies represent the most significant global economies.

  3. What is the RBI Special Drawing Right?

    The Reserve Bank of India (RBI) holds SDRs as part of its foreign exchange reserves. The SDRs provide India with the ability to draw on international liquidity by exchanging them for freely usable currencies when needed.

  4. What is the difference between a reserve tranche and Special Drawing Rights (SDRs)?

    The reserve tranche refers to a portion of a country’s quota in the IMF that can be accessed without conditions. In contrast, SDRs are an international reserve asset that can be exchanged for currencies but do not belong to a countryโ€™s quota.

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