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Peterson Institute for International Economics

Understanding Special Drawing Rights (SDRs)

John Williamson, senior fellow at the Peterson Institute, has been associated with the Institute since 1981. He was project director for the UN High-Level Panel on Financing for Development (the Zedillo Report) in 2001; on leave as chief economist for South Asia at the World Bank during 1996–99; economics professor at Pontificia Universidade Católica do Rio de Janeiro (1978–81), University of Warwick (1970–77), Massachusetts Institute of Technology (1967, 1980), University York (1963–68),and Princeton University (1962–63); adviser to the International Monetary Fund (1972–74); and economic consultant to the UK Treasury (1968–70). His numerous publications include Reference Rates and the International Monetary System (2007) and Dollar Adjustment: How Far? Against What? (2004).

Note: The author wishes to thank C. Fred Bergsten and Edwin M. Truman for helpful comments on an earlier draft of this policy brief. He is solely responsible for any errors that remain.

© Peter G. Peterson Institute for International Economics. All rights reserved.

A once-familiar but long-neglected acronym has reappeared in newspapers in recent weeks. We have read that the G-20 meeting in London endorsed a proposal that the International Monetary Fund (IMF) should create $250 billion in Special Drawing Rights (SDRs). We have been told that one problem with this proposal is that most of the SDR allocation would accrue to countries that are unlikely to use them, and some readers may have seen proposed ways around this difficulty. We have read that the governor of the People’s Bank of China, Zhou Xiaochuan, has proposed that the SDR should gradually displace the dollar at the center of the international monetary system and that surplus countries should be able to convert their dollar holdings into SDR-denominated assets. No one can doubt that the SDR is back.

But what is an SDR? Yes, SDR stands for Special Drawing Right, but that hardly answers the question. How and why did the SDR originate? How did it get its strange name? How many are there, who holds them, and what can they be used for? Do the rather-distinct proposals outlined above all refer to the same animal? How are these proposals interrelated? Can one speculate usefully about the future of the SDR? This policy brief aims to answer such questions.

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