Special drawing Rights and Yuan inclusion in IMF SDR basket

What are Special Drawing Rights?

• It is interest-bearing international reserve asset created by the IMF in 1969 to supplement official reserves of member countries
• SDR is allocated to member countries of IMF based on the level of their standing in the IMF which depends on their share in the world economy.
• SDR is neither a currency and nor it can be claimed from the IMF in the form of reserve currency (such as US dollars, Yen, British Pound and Euro). There are no coins or note denominated in SDRs. Instead member countries can exchange SDR among themselves against reserve currency. E.g. If suppose 1 SDR = 2$ then, Country A can give 100 SDRs to Country B and then receive $200 from Country B. SDRs can’t be used to directly purchase goods and services.
• Through this mutual exchange of SDRs, a country can have its holdings of SDRs equal, above or below its allocated amount. It is holding is above its allocation it get interest on the surplus. If it’s holding is below the allocated amount, it pays interest on the shortfall.
• It is unit of account at IMP and is restricted to its members only. Private parties cannot hold SDR.
• IMF lends to any nation to meet its balance of payments on SDRs.
• Till 2009, the amount of SDR was limited to 21.4 billion but due to financial crisis of 2009, its amount was increased upto 204.1 billion to inject more money supply (liquidity) in the global economic system and supplement member countries offical reserve.
• Currently SDR value is determined by the basket of four major currencies. Presently 1 SDR = INR 91.5.
• SDR interest rate is determined by the weighted average of interest rate on the short-term financial instrument in the markets of currencies in the SDR basket.