Introduction
Special Drawing Rights, or SDRs, are created by the International Monetary Fund (IMF) and allocated to IMF member countries in proportion to their quotas or ownership shares. A country’s holdings of its SDRs are part of its foreign exchange reserves, usually held by the central bank or by that country’s reserve asset manager. In the United States, the Treasury Department holds them as part of the Exchange Stabilization Fund (ESF). Each IMF member’s SDR holdings are published monthly on the IMF website.
SDRs can only be utilized in transactions with the IMF or with other members arranged through the IMF. When a country sells SDRs, it receives foreign currency in return, one of the five currencies comprising the SDR—the US dollar (which is over 40% of the SDR “basket”), UK pound, Euro, Japanese Yen, and Chinese yuan.
Countries are free to sell their SDRs to a willing buyer in order to obtain a usable currency. (If no willing buyer is available, the IMF can designate a buyer. This has not happened since 1987.) There are no restrictions on how countries may use the foreign exchange they receive in return. These transactions have allowed countries to use the proceeds (i.e., the usable currency) to purchase critical imports, repay debts, or cover other expenses.
