The Special Drawing Right is an international reserve asset whose value rests on a basket of five currencies

Background

The Special Drawing Right, or SDR, is an international reserve asset. The International Monetary Fund created the SDR in 1969, in a monetary system in which the link between currencies and gold set limits on how far the growing demand for reserves could be met; the Fund's founding treaty, the Articles of Agreement, authorises it to allocate special drawing rights to meet the need for a supplement to existing reserve assets. The SDR is neither money nor currency, but an international reserve asset; its value is based on a basket of five currencies, namely the US dollar, the euro, the Chinese renminbi, the Japanese yen and the British pound sterling. The SDR valuation basket is reviewed and adjusted every five years. The SDR has also been adopted as the unit of account by a number of official institutions, including the Bank for International Settlements. The IMF makes a general allocation of SDRs to its members in proportion to their existing quotas in the Fund. Under the Articles of Agreement, special drawing rights are held by members that are participants in the Special Drawing Rights Department and by the Fund itself, and only other official entities may be prescribed as further holders; individuals and private entities cannot hold SDRs, and SDRs cannot be exchanged by private entities. In 2021 the IMF's Board of Governors approved a general allocation of about SDR 456 billion, equivalent to $650 billion, the largest SDR allocation in the history of the IMF.