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DAILY NEWS ANALYSIS

  • 18 April, 2020

  • 3 Min Read

Special Drawing Rights: IMF

Special Drawing Rights: IMF

Recently, the Finance Minister of India opposed a general allocation of new Special Drawing Rights (SDR) by the International Monetary Fund (IMF) because it might not be effective in easing Covid-19 driven financial pressures.

  • The Finance Minister was concerned that such a major liquidity injection could produce potentially costly side-effects if countries used the funds for irrelevant purposes.
  • The new SDR allocation will provide all 189 members with new foreign exchange reserves with no conditions.

Imp Points

  • The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.
  • The SDR serves as the unit of account of the IMF and some other international organizations.
  • The currency value of the SDR is determined by summing the values in U.S. dollars, based on market exchange rates, of a SDR basket of currencies.
  • The SDR basket of currencies includes the U.S. dollar, Euro, Japanese yen, pound sterling and the Chinese renminbi (included in 2016).
  • The SDR currency value is calculated daily (except on IMF holidays or whenever the IMF is closed for business) and the valuation basket is reviewed and adjusted every five years.
  • Quota (the amount contributed to the IMF) of a country is denominated (expressed) in SDRs.
    • Members’ voting power is related directly to their quotas.
  • India's Foreign exchange reserves also incorporate SDR.

Source: TH


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