POLICY BRIEF 09-11

Understanding Special Drawing Rights (SDRs)

by John Williamson, Peterson Institute for International Economics

Special Drawing Rights (SDRs), the reserve asset issued by the International Monetary Fund (IMF), have lately reappeared in the news. The G-20 leaders, at their recent meeting in London, endorsed a proposal to issue $250 billion in SDRs to counteract the financial crisis, while the governor of the People's Bank of China has called for SDRs to gradually replace the dollar at the center of the international monetary system, a plan that would be facilitated by allowing countries to convert their dollar reserve holdings into SDRs.

John Williamson reviews the history of the IMF's SDRs and provides an overview of these and other proposals that would increase this synthetic currency's role in the international monetary system. The SDR was originally created to resolve a recognized flaw in the structure of the postwar Bretton Woods monetary system, but the eventual breakdown of Bretton Woods and the subsequent evolution of the current dollar-centered system have relegated the SDR mostly to the minor role of serving as a unit of account for the IMF's transactions. Recent proposals would return the SDR to greater prominence and could help to create a financial system that is free from the imbalances that have plagued the world of late.

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RELATED LINKS

Book: Strategy for IMF Reform February 2006

Op-ed: How the Fund Can Help Save the World Economy March 5, 2009

Policy Brief 07-1: The IMF Quota Formula: Linchpin of Fund Reform February 2007

Op-ed: The Fund Appears to Be Sleeping at the Wheel October 3, 2005

Policy Brief 00-5: The Role of the IMF: A Guide to the Reports May 2000

Working Paper 01-4: IMF Structural Conditionality: How Much Is Too Much? April 2001

Paper: What Next for Argentina? February 2004

Working Paper 03-1: Debt Sustainability, Brazil, and the IMF February 2003