Special Drawing Rights Certificate account account

Nishant1

What does the Special Drawing Rights Certificate account on the Fed`s balance sheet mean?

Mechanic

To the best of my knowledge, it means they could draw that much worth of US Dollars from IMF.

SDR consists of a basket of 4 currencies (i think) having different weights. Combined, it can be treated as another currency which is managed by IMF.

Sorry, may be someone else can answer this better.

Ionutzakis

I know its an account of the Fed with the IMF...i guess...but what is it for and why?

draz

From Investopedia

What Does Special Drawing Rights - SDR Mean?
An international type of monetary reserve currency, created by the International Monetary Fund (IMF) in 1969, which operates as a supplement to the existing reserves of member countries. Created in response to concerns about the limitations of gold and dollars as the sole means of settling international accounts, SDRs are designed to augment international liquidity by supplementing the standard reserve currencies.

Investopedia explains Special Drawing Rights - SDR
You can think of SDRs as an artificial currency used by the IMF and defined as a "basket of national currencies". The IMF uses SDRs for internal accounting purposes. SDRs are allocated by the IMF to its member countries and are backed by the full faith and credit of the member countries' governments.

If anyone understand, please enlighten us.



Edited 1 time(s). Last edit at Sunday, September 27, 2009 at 02:08PM by revenant.

kasinkei

An SDR is purely a reserve currency, not an actively traded/used currency in the markets. As other people have explained its an artificial currency made up of USD, Yen, Sterling, and Euros weighted on their respective importance in the global economy. I say its a reserve currency because its sole purpose is to sit on the balance sheet of the country's foreign reserves. These are used for intervention purposes mainly. The main idea is that countries can exchange their SDRs for a 'hard' currency if they needed to intervene on the FX market to aid in liquidity.

Ex. Egypt's markets and businesses are finding it hard to conduct business because of lack of credit available to them in USD. Well the IMF allocated Egypt an amount of SDRs, so they would sell these SDRs to another country to obtain USD which they could then inject into their economy.