Special Drawing Right (SDR)
The SDR is an international reserve asset issued by the IMF (International Monetary Fund). It serves as a supplement or alternative to the country’s existing reserves. The SDR is neither a currency nor a claim on the IMF. It is merely an instrument that has a potential claim on the freely usable currencies of the IMF’s member countries.
The SDR gets its value from 5 currencies – US dollars, Euros, Chinese Yuan, Japanese Yen and Pound Sterling. This SDR can be exchanged to obtain the above-mentioned currencies.
The interest rate of these SDRs is determined on a weekly basis as a weighted average of the representative interest rates on short-term government debt instruments in the money markets of the SDR basket currencies mentioned above.
The SDRs issued by the IMF can be availed based on the quota allocated to each country. India has a quote of 13,114.4 million beyond which India cannot borrow any SDR. When SDRs are issued, the quotas are also recommended to be revised in a way that emerging or the most affected markets are allocated higher quotas. As a consequence, the quota for developed markets or unaffected markets falls. The IMF issues SDRs during global financial crises to help countries recover from huge losses.