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SDR serves as IMF’s ‘artificial currency’
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THE Special Drawing Right has been the International Monetary Fund’s “artificial currency” since 1969, used to calculate the interest rates it charges on loans to member states.
Initially, the international reserve asset was used to support the fixed exchange rate system set up by the Bretton Woods agreement in 1947, when two key reserve assets, gold and the US dollar, were deemed inadequate to support the expansion of world trade and development.
But the collapse of the fixed exchange rate system and the drop of the dollar’s peg to gold in the early 1970s eased the need for the SDR, which became essentially a tool of the IMF.
The SDR is not a currency and has no physical representation, but it can be exchanged for freely usable currencies.
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