What is SDR

SDR stands for Special Drawing Rights, which is an international monetary reserve asset created by the International Monetary Fund (IMF) to supplement the existing reserves of member countries. SDRs are allocated to IMF member countries in proportion to their quota subscriptions, and they can be used for a variety of purposes, including settling international transactions, diversifying reserve holdings, and providing liquidity in times of financial stress. The value of SDRs is based on a basket of major international currencies, including the US dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling. This basket is reviewed and adjusted every five years to ensure that it reflects the relative importance of currencies in the global economy. SDRs can be exchanged for freely usable currencies through voluntary trading arrangements among IMF member countries. The interest rate on SDR holdings is determined by the IMF and is linked to short-term interest rates in major financial markets. Overall, SDRs play a crucial role in the international monetary system by providing liquidity and stability, and they serve as a valuable asset for central banks and governments to manage their international reserves.