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Special Drawing Rights (SDRs) are international foreign exchange reserve assets. Allocated to nations by the International Monetary Fund (IMF), a SDR represents a claim to foreign currencies for which it may be exchanged in times of need.
Today, the US Dollar is the world’s primary foreign exchange reserve asset, and SDRs may be little used. Some nations, notably China and Russia (as well as the UN), favor increasing the substance and function of the SDR.
Although denominated in US dollars, the nominal value of an SDR is derived from a basket of currencies; specifically, a fixed amount of Japanese Yen, US Dollars, British Pounds and Euros.
During its creation, it was debated if the Special Drawing Right should be a form of money or a type of credit. Nations, when asked to do so by the IMF, are supposed to purchase SDRs from other nations with weak foreign exchange reserves. As this means that SDR allotments may need to be repaid (although not to the IMF itself), the SDR could be considered a form of debt security. And like debt securities, SDR holdings do accrue interest. However, the SDR is used as a unit of account and is sometimes referred to as a “quasi currency”.
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