Page 203 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes
table 10.1: Determination of value of sDr

1. American Dollar 41.9%
2. Euro 37.4%
3. Japanese Yen 9.4%
4. British Pound 11.3%
total 100%

Did u know? Starting January 1, 1970, IMF created a system of “Special Drawing Rights” to
increase international liquidity.

10.3.1 features of sDrs

Main features of SDRs are as under:
1. It has no backing of any fund. There is book entry only.
2. IMF has opened a separate special account.
3. It is a method of augmenting existing liquid funds and has resulted in increasing
international liquidity.
4. The number of shares a member-country holds in IMF are in the same proportion it has its
share in SDR.

5. SDR is used to meet unfavourable balance of payments and also to make up unexpected
shortage of liquid funds. When an exporting country advances its currency to importing
country, SDRs of the said amount are credited into the account to exporting country and
debited to the account of importing country.
6. Since January 1981, SDR is evaluated on the basis of basket of currencies of five nations.
These five nations are the largest exporters of the world. Since January 1, 1998, some changes
have been effected in the weightage and value of one unit of SDR (as shown in table 10.1),
because there is a provision to effect change in weightage and value of SDR every five
years. Whenever, there is change in the value of these currencies, there is corresponding
change in the value of one unit of SDR.
7. The country which makes use of SDR, the volume of its reserve goes down and the country
that provides foreign exchange in lieu of SDR records a rise in value of its accumulated
SDRs. There is also a provision of paying simple interest, at the rate of 1.5 per cent, on the
quantum of SDRs of these countries.

Notes The SDRs are designed to supplement gold and the reserve currencies, viz.,
the pound and the dollar.

10.3.2 allocation of sDrs

The fund allocates SDRs to participants in proportion to their quotas for varioususes mentioned

above. From 1970–72, initially SDR $9.3 billion were created by the Fund. This holding continued
till 1978. SDR $4 billion were raised in each of the years 1979, 1980 and 1981. As a result, the total
holding of SDRs was $21.4 billion in 1981. Since 1981 no further allocation of SDRs has been

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