Home  /  Daily Current Affairs  /  16-05-2022 / Special Drawing Rights (SDR)

Special Drawing Rights (SDR)

Posted on May 16, 2022 by admin1  1753

In News 

  • Recently, the IMF lifted the yuan’s weighting in the Special Drawing Rights currency basket.

About the recent changes  

  • Recent change in Weightage: The IMF raised the yuan’s weight to 12.28% from 10.92% in its first regular review of the SDR evaluation since the Chinese currency was included in the basket in 2016.
    • The weighting of the US dollar rose to 43.38% from 41.73%, while those of the euro, Japanese yen and British pound declined.
  • Implications: It will prompt the Chinese central bank to pledge to push for a further opening of its financial markets.
    • The change came amid a sharp depreciation of the yuan.
    • The Chinese currency is expected to play a rising role in global payments, settlements and foreign exchange reserves over the long term.

What are Special Drawing Right (SDR)? 

  • This is a kind of reserve of foreign exchange assets comprising leading currencies globally and was created by the International Monetary Fund in the year 1969.
  • SDR is often regarded as a ‘basket of national currencies’ comprising major currencies of the world – the US dollar, Euro, British Pound, Yen (Japan) & the Chinese renminbi (included in 2016). 
  • The composition of this basket of currencies is reviewed every five years wherein the weightage of currencies sometimes gets altered.
  • SDR can be freely exchanged between the member countries instead of relying on the currency of any one particular country.

Quotas

  • Quota (the amount contributed to the IMF) of a country is denominated in SDRs.
  • Members’ voting power is related directly to their quotas.
  • IMF makes the general SDR allocation to its members in proportion to their existing quotas in the IMF.
  • India’s foreign exchange reserves also incorporate SDR other than gold reserves, foreign currency assets and Reserve Tranche in the IMF.

Reserve Tranche

  • It is a portion of the required quota of currency each member country must provide to the International Monetary Fund (IMF) that can be utilized for its own purposes.

International Monetary Fund

  • It was established in 1944 in the aftermath of the Great Depression of the 1930s.
  • IMF and the World Bank are also known as the Bretton Woods twins because both were agreed to be set up at a conference in Bretton Woods in the US.
  • It is governed by and accountable to the 190 countries that make up its near-global membership.
    • India became a member in December 1945.
  • Aim: To ensure the stability of the international monetary system (the system of exchange rates and international payments) which enables countries and their citizens) to transact with each other.
    • Its mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.
  • Financing: The IMF’s resources mainly come from the money that countries pay as their capital subscription (quotas) when they become members.
    • Each member of the IMF is assigned a quota, based broadly on its relative position in the world economy.
    • Countries can then borrow from this pool when they fall into financial difficulty.
  • Publications:
    • World Economic Outlook
    • Global Financial Stability Report
    • Fiscal Monitor
    • Global Policy Agenda 

Source: TH

 
Previous article Evidence of Iron Age in Tamil Nadu
Next article Thomas Cup