SDRs and Its Value

SDR is at present ‘an international unit of currency’. The quotas of all the member-countries with the Fund are now valued in terms of SDR which is now an international monetary asset and as such SDR is held in the international reserve of the central banks of member-countries to finance their deficits or surpluses in their balance of payments positions. At present, all transactions of the IMF such as its loans to member-countries, its liquid reserves, its capital structured are all expressed not in terms of gold or US dollars but in terms of SDRs.

Following are the three principles uses of SDRs:

(1) Under this arrangement, the IMF designates member-countries in the SDR scheme, with strong and favorable balance of payments positions and heavy reserve position to provide their currencies in exchange of SDRs to other member-countries needing their currency.

(2) The SDRs are used in all transactions with the IMF.

(3) Their use in transactions is by agreement. The IMF allows sale of SDRs for currency by arrangement with another participating country in this scheme.

After the Second Amendment, the IMF allows the following additional uses, such as ‘swap Arrangements’ operation, granting and receiving of loans, settlement of financial disputes, as security for financial obligations and for granting of donations.

The IMF has also allowed the World Bank and its associates (the Bank for International Settlements, the African Development Bank, the Arab Monetary Fund, etc.) to hold SDRs. Attempts are being made to make use of SDR as a unit of account in financial markets of world and for private transactions.