Special Drawing Rights (SDRs) are a form of international monetary reserve asset created by the International Monetary Fund (IMF) to supplement its member countries’ official reserves.
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SDRs were established in 1969 as a response to the instability of the international monetary system at the time. They are not a currency themselves but rather represent a claim to currency held by IMF member countries for use in transactions among themselves and with the IMF.
The value of SDRs is based on a basket of major international currencies, including the US dollar, euro, Chinese yuan, Japanese yen, and British pound sterling. This basket is reviewed every five years by the IMF to ensure it reflects the relative importance of currencies in the global economy.
SDRs can be used by member countries to settle international payments, diversify their reserves, and as a unit of account for international transactions. They are allocated to IMF member countries in proportion to their quotas in the organization, which are determined by their relative size in the global economy.
SDRs are not widely used in everyday transactions but are primarily used by central banks and international organizations. However, they play a crucial role in providing liquidity and stability to the international monetary system, especially during times of financial crisis.