type of international money created by the International Monetary Fund (IMF) and allocated to its member nations. Although SDRs are only accounting entries, and are not backed by paper money or precious metal, they are an international reserve asset. The SDR is made up from a basket of major currencies; the dollar value of SDRs is computed daily by multiplying these currencies by their dollar exchange rate in London, and adding (U.S.) $.54. A nation that has a balance of payments deficit can use SDRs, subject to certain International Monetary Fund (IMF) conditions, to settle debts to another nation or to the IMF.
part of a nation's reserve assets in the international monetary system; known informally as paper gold. First issued by the International Monetary Fund (IMF) in 1970, SDRs are designed to supplement the reserves of gold and convertible currencies, or hard currencies, used to maintain stability in the foreign exchange market.
measure of a nation's reserve assets in the international monetary system; known informally as "paper gold." First issued by the International Monetary Fund (IMF) in 1970, SDRs are designed to supplement the reserves of gold and convertible currencies (or hard currencies) used to maintain stability in the foreign exchange market. For example, if the U.S. Treasury sees that the British pound's value has fallen precipitously in relation to the dollar, it can use its store of SDRs to buy excess pounds on the foreign exchange market, thereby raising the value of the remaining supply of pounds.
Because of its inherent equilibrium relative to any one currency, the SDR has been used to denominate or calculate the value of private contracts, international treaties, and securities on the eurobond market.
