Let us make an in-depth study of the Special Drawing Rights (S.D.Rs.) :- 1. History of Special Drawing Rights 2. Uses.

History of Special Drawing Rights (S.D.Rs.):

In the beginning of 1970, the I.M.F. introduced a scheme for the creation and issue of Special Drawing Rights (S.D.Rs.) as known as the Paper gold.

They were created through the First Amendment to the Fund Articles of Agreement in 1969. In the beginning S.D.Rs. were held by countries as part of their reserves and converted into currencies when they were in balance of payments difficulties.

After the second amendment to the Fund Articles of Agreement in 1978, the S.D.R. became an international unit of account. To facilitate its valuation the number of currencies in the basket were reduced to five in 1981. The present currency composition and weighting pattern of the S.D.R. is revised every five years. This revision is based on both the values of the exports of goods and services and the balances of their currencies held by other members.

Uses of the S.D.R. (Special Drawing Right):

The S.D.R. as we have studied is an international unit of account which is held in the fund’s Special Drawing Account. The quotas of all currencies in the account are valued in terms of the S.D.R. As the international monetary asset, the S.D.R. is held in the international reserves of Central Banks and governments to finance their deficits or surpluses of balance of payments.


All transactions by the fund is in the form of loans and are expressed in the S.D.R. When the S.D.R. scheme started each participant countries were to maintain its average daily holding of S.D.Rs. at 30 per cent of its net cumulative allocations over successive five year periods.

Principal uses of S.D.R. are three:

(i) The Transactions with Designation:


Under this, the fund designates a participants in the S.D.R. scheme who has a strong balance of payments and reserve position to provide currency in exchange for S.D.Rs. to another participant needing its currency.

(ii) S.D.Rs. are mostly used in meeting the all transactions of the funds, so that it can overcome the difficulties of finance.

(iii) Transactions by Agreement:

Here, the fund allows sales of S.D.Rs. for currency by agreement with another participant.


In addition to the above the fund has adopted a series of decisions allowing the following additional uses of S.D.Rs. They are:

(a) In Swap arrangements,

(b) In forward operations,

(c) In loans,

(d) In the settlement of financial objections,

(e) As security for performance of financial obligations and donations.

The important merit of S.D.R. is that it has free the international monetary system from its exclusive dependence on the U.S. dollar and fluctuations in gold prices. Under this the payment and repayment of money has become easier and more flexible than under the fund schemes.

Despite the merit the S.D.R. scheme has been criticised for favouring the rich nations. Further it has been said that it is an inequitable scheme which has tended to make unfair distribution of international liquidity. In the end it can be said that due to the rigid attitude of the United States and some other developed countries the fund has not been able to achieve the objectives of increasing liquidity through S.R.Ds.