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Special drawing rights - Shanmugam IAS academy in coimbatore
Special drawing rights

SPECIAL DRAWING RIGHTS

What’s in news?

Finance Minister of India opposed a general allocation of new Special Drawing Rights (SDR) by the International Monetary Fund (IMF) because it might not be effective in easing Covid-19 driven financial pressures.

Key data’s:

  • The Finance Minister was concerned that such a major liquidity injection could produce potentially costly side-effects if countries used the funds for irrelevant purposes.
  • The new SDR allocation will provide all 189 members with new foreign exchange reserves with no conditions.

Special Drawing Right (SDR):

  • The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.
  • The SDR serves as the unit of account of the IMF and some other international organizations.
  • The currency value of the SDR is determined by summing the values in U.S. dollars, based on market exchange rates, of a SDR basket of currencies.
  • The SDR basket of currencies includes the U.S. dollar, Euro, Japanese yen, pound sterling and the Chinese renminbi (included in 2016).
  • The SDR currency value is calculated daily (except on IMF holidays or whenever the IMF is closed for business) and the valuation basket is reviewed and adjusted every five years.
  • Quota (the amount contributed to the IMF) of a country is denominated (expressed) in SDRs.
  • Members’ voting power is related directly to their quotas.
  • India’s Foreign exchange reserves also incorporate SDR.
  • So far SDR 204.2 billion (equivalent to about US$281 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis.

Links to note:

https://www.iasipstnpsc.in/economy-tracker/

https://www.nytimes.com/reuters/2020/04/16/world/asia/16reuters-imf-worldbank-india.html

https://www.india.com/business/imfs-liquidity-boost-may-have-costly-side-effects-if-says-sitharaman-4002443/

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