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SDR - Special Drawing Rights added to CBI.iqebsite

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SDR - Special Drawing Rights added to CBI.iqebsite   Empty SDR - Special Drawing Rights added to CBI.iqebsite

Post by claud39 Tue Jan 26, 2021 4:20 pm

SDR - Special Drawing Rights added to CBI.iq website


US dollarUSD1460,000
Pound sterlingGBP1998,740
Canadian dollarCAD1146.177
Swiss francS.FR1647.391
Swedish kronaSEK176,584
Norwegian kroneNOK171.456
Danish kroneDKK238.449
Japanese yenJPY14.063
Chinese YuanCNY225.483
Australian dollarAUD1129.748
Special drawing rightsSDR2104.970
Gold for 24-ounceGold2692432.500

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Post by claud39 Tue Jan 26, 2021 4:23 pm

Explaining SDRs (Special Drawing Rights)

The Special Drawing Right or SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries and can be exchanged for freely usable currencies.

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Post by claud39 Tue Jan 26, 2021 4:36 pm

Special Drawing Right (SDR)

September 30, 2016
The SDR is an international reserve asset, created in 1969 by the IMF to supplement the official foreign exchange reserves of its member countries. As of March 2016, 204.1 billion SDRs had been created and allocated to member countries (equivalent to approximately $ 285 billion). SDRs can be exchanged for freely usable currencies. As of October 1, 2016, the value of the SDR is based on a basket of five major currencies: the United States dollar, the euro, the Chinese renminbi (RMB), the Japanese yen and the pound sterling.

The role of the DTS

The SDR was created by the IMF in 1969 as a complementary international reserve asset under the Bretton Woods system of fixed parities. Any country adhering to the system was required to have official reserves - state or central bank holdings of gold and widely accepted currencies - which could be used to buy back its national currency on international exchange markets, as needed, to maintain its rate. exchange rate. But the international supply of two major reserve assets, gold and the dollar, proved insufficient to support the expansion of international trade and financial flows then witnessed. The international community has therefore decided to create a new global reserve asset under the auspices of the IMF.
Just a few years after the creation of the SDR, the Bretton Woods system collapsed and major currencies moved to floating exchange rate regimes. Subsequently, the expansion of international capital markets made it easier for creditworthy governments to borrow, and many countries accumulated large volumes of international reserves. As a result, the use of SDRs as a global reserve asset has declined. More recently, however, the 2009 SDR allocations totaling SDR 182.6 billion have been instrumental in supplying the global economic system with liquidity and in supplementing the official reserves of member countries amid the global financial crisis.
The SDR is not a currency, nor is it a claim on the IMF. On the other hand, it represents a virtual claim on the freely usable currencies of IMF member countries. SDR holders can obtain these currencies in exchange for SDRs in two ways: first, on the basis of free swap agreements between member countries; second, when the IMF designates member countries with a strong external position to acquire SDRs from members with weak external positions. In addition to its role as a complementary reserve asset, the SDR serves as the unit of account for the IMF and several other international organizations.

The value of the SDR is determined by a basket of currencies

The value of the SDR was initially set at 0.888671 grams of fine gold, which then corresponded to one dollar. After the collapse of the Bretton Woods system in 1973, the value of the SDR was determined against a basket of currencies. From 1 st October 2016, it includes the dollar, euro, renminbi, yen and sterling.
The value of the SDR in dollars is determined daily and posted on the IMF website . It represents the sum of the share of each of the currencies in the basket, expressed in dollars and calculated on the basis of the exchange rate quoted each day at noon on the London market.
The composition of the basket is reviewed every five years by the Executive Board, or sooner if the IMF is of the opinion that a change in circumstances warrants it, to ensure that the weightings of the currencies reflect their relative importance in international trade and financial systems. At the last review (completed in November 2015) the Board concluded that, as of 1 st October 2016, the renminbi is deemed to be freely used (see Article XXX (f )), and is included in the basket of the DTS.
A new weighting formula was also adopted during the 2015 review. It assigns, for each issuer of a currency in the basket, equal shares to its exports and to a composite financial indicator. The financial indicator includes, in equal parts, the official reserves denominated in the currency of the Member State (or of the monetary union) which are held by other monetary authorities not issuing this currency, the volume of exchange rate in that currency, as well as the sum of the outstanding international bank commitments and international debt securities denominated in that currency.
The respective weights for the dollar, euro, renminbi, yen and pound are as follows: 41.73%, 30.93%, 10.92%, 8.33% and 8.09%. They were used to determine the amounts of each of the five currencies included in the new SDR basket, entered into force on 1 st October 2016. The new amounts of the currencies will remain fixed throughout the next five-year assessment DTS (see daily assessment of DTS ). Since the amounts of these currencies are fixed, the relative weighting of the currencies included in the SDR basket may vary over a valuation period, with an increase (or decrease) in the weight, depending on whether the currencies appreciate (or depreciate) over time against others.
The next review is currently scheduled for September 30, 2021.

SDR interest rate

The SDR interest rate is used as the basis for calculating the interest rate attached to loans to member countries and interest paid to member countries when their resources are used for regular (non-concessional) IMF financing . It is also the interest paid to member countries on their holdings of SDRs and collected on their allocations of SDRs. The SDR interest rate is fixed each week on the basis of the weighted average of the interest rates representative of certain short-term instruments issued on the money market of countries whose currency is part of the composition of the SDR.

SDR allocations to member countries

Under its Articles of Agreement (Article XV, Section 1, and Article XVIII), the IMF may allocate SDRs to member countries in proportion to their quotas. respective. These allocations provide each member country with a free and unconditional international reserve asset. The SDR mechanism is self-financing and charges commissions on allocations, which are then used to pay interest on SDR holdings. If a member country does not use any of the SDR assets allocated to it, the amount of the commissions will be equal to the interest received. However, if the SDR holdings held by a member country exceed its allocation, this excess bears interest; conversely, if he holds an amount of SDR less than his allocation, he pays interest on the difference.
The Articles also provide for cancellations of SDRs, but this provision has never been used.
The IMF Articles of Agreement provide for the possibility of approving as other holders of SDRs — other than IMF member countries — certain types of official organizations such as the BIS, the ECB or regional development banks. An authorized holder can acquire and use SDRs in transactions and operations with other authorized holders and with IMF member countries. The IMF cannot allocate SDRs to itself or to authorized holders.
General SDR allocations should correspond to an overall long-term need to supplement existing reserve assets. Decisions to make a general allocation of SDRs are taken for periods of up to five years (the last report is in June 2016 ), although there have so far been only three general allocations. The first general allocation - totaling SDR 9.3 billion, was distributed in 1970-72, the second - amounting to SDR 12.1 billion - was distributed in 1979-81 and the third - for an amount of SDR 161.2 billion - was distributed on August 28, 2009.
In addition, the Fourth Amendment to the Articles took effect on August 10, 2009. It provided for a one-time special allocation of SDR 21.5 billion and was intended to enable all IMF member countries to participate equitably in the SDR system and to rectify the disparities towards countries which, having joined the IMF after 1981 - that is, more than a fifth of the current members of the IMF - had never received an SDR allocation until 2009.
The 2009 general allocation and special allocation brought the total cumulative SDR allocations to SDR 204.1 billion.

Buying and Selling SDRs

Members often have to buy SDRs to meet their obligations to the IMF or may decide to sell SDRs to adjust the composition of their reserves. The IMF acts as an intermediary between members and authorized holders to ensure that SDRs can be exchanged for freely usable currencies. For more than two decades, the SDR market has operated on the basis of voluntary trading arrangements. Under these agreements, several members and one authorized holder have volunteered to buy or sell SDRs within the limits prescribed in their respective agreements. Following the 2009 SDR allocations, the number and scope of voluntary arrangements has increased to ensure that the voluntary SDR market is maintained liquid. There are now 32 voluntary exchange agreements,
Since September 1987, voluntary transactions have ensured the liquidity of the SDRs. However, if the capacity of voluntary trade agreements were to be insufficient, the IMF could resort to the nomination mechanism. Under this arrangement, members with a sufficiently strong external position are appointed by the IMF to purchase SDRs up to a certain amount in exchange for freely usable currencies from members with weak external positions. This mechanism serves to guarantee the liquidity and the reserve character of the SDR.

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