Special Drawing Rights (SDRs) are an international reserve currency sponsored by the International Monetary Fund (IMF). The idea was originally put forward by John Maynard Keynes, who had suggested an international currency to be known as 'Bancor'. This idea was dropped, but in 1969 the Group of Ten1 persuaded the IMF to introduce so called special drawind rights, which were similar to Keynes's currency but consisted of 'paper gold'. Members of the Fund were automatically allocated SDRs when the original issue was made and these became part of their official currency reserves. The original allocation was made proportionally to the quotas of currency originally subscribed by the various countries to the IMF on its formation though since then additional allocations have been made on bases determined by the directors of the IMF.

The drawings are 'special' in that they are additional to the credit facilities already existing for the fund's members and, unlike the latter, are not repayable. SDRs can be used in settlement of international trade ballances, and a member country must, if asked by the Fund, supply its own currency to another member in exchange for SDRs, unless it already holds more than three times its original allocation. There is also a requirement that each recipient member must retain at least 30 per cent of its original allocation in its official reserves. SDRs can also be used by members to repay their debt to the Fund itself.

Value

The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold. As gold had a fixed dollar price under the Bretton Woods system, the SDR was also equivalent to one US dollar. With collapse of the Bretton Woods system (gold standard) in 1973, the SDR was redifined as a basket of currencies a year later.

The currency weights in the SDR basket are as follows:

  • US dollar: 45%
  • Euro: 29%
  • Japanese yen: 15%
  • Pound sterling: 11%

    The value of the SDR in US dollars is calculated daily as the sum of the values in US dollars of the specific amounts of the four currencies, based on exchange rates quoted at noon at the London foreign exchange market.

    References:
    http://www.imf.org/external/np/exr/facts/sdr.HTM
    http://www.imf.org/external/np/tre/sdr/basket.htm

    1 - aka as the Paris Club, a group of ten countries: Belgium, Canada, France, Italy, Japan, the Netherlands, Sweden, UK, USA and Germany.