SDR (Special Drawing Right)

The Special Drawing Right (SDR) was created by the International Monetary Fund in 1969 to supplement the official reserves of member countries during the Bretton Woods era of fixed exchange rates. It is not a currency and not a claim on the IMF; rather, it is a potential claim on the freely usable currencies of IMF members. Holders can exchange SDRs for those currencies either through voluntary trading arrangements among members or through IMF-designated transactions.

The SDR's value is determined daily against a basket of major currencies. Since the 2016 review, the basket has comprised the US dollar, euro, Chinese renminbi, Japanese yen, and pound sterling — the renminbi's inclusion being a notable milestone signalling China's growing weight in global trade and finance. Basket weights are reviewed approximately every five years.

SDRs are allocated to member countries in proportion to their IMF quotas. Major general allocations have occurred in 1970–72, 1979–81, 2009 (in response to the global financial crisis), and August 2021, when the IMF approved the largest-ever allocation, equivalent to roughly US$650 billion, to help members address the COVID-19 crisis and bolster global liquidity.

SDRs carry an interest rate (the SDRi), calculated weekly from short-term rates on the basket currencies' money markets. A country holding more SDRs than its allocation earns interest; one holding fewer pays interest.

Policy debates around SDRs include:

• Rechannelling allocations from wealthy to lower-income countries via vehicles such as the IMF's Poverty Reduction and Growth Trust (PRGT) and Resilience and Sustainability Trust (RST).
• Proposals to use SDRs for climate finance or development.
• Whether the SDR could ever evolve into a genuine global reserve currency — an idea floated by then-PBOC Governor Zhou Xiaochuan in a 2009 essay.