SDRs are used by IMF member nations to pay each other their IMF loans.
If commodities were priced in SDRs, the argument goes, their prices would be less volatile.
ECONOMIST: Is there a better way to organise the world��s currencies?
For SDRs to play this role, however, they would have to be much more plentiful.
ECONOMIST: Is there a better way to organise the world��s currencies?
And if countries held their reserves in SDRs, they would escape the Triffin dilemma.
ECONOMIST: Is there a better way to organise the world��s currencies?
SDRs were created in 1969 to support the Bretton Woods fixed exchange rate system.
SDRs have enjoyed renewed attention lately in the context of debates on international monetary reform.
SDRs are allocated to IMF members on the basis of their contribution to the fund.
Few countries are likely to use SDRs much until there are deep private markets in SDR-denominated assets.
ECONOMIST: Is there a better way to organise the world��s currencies?
They make up less than 5% of global reserves and there are no private securities in SDRs.
ECONOMIST: Is there a better way to organise the world��s currencies?
Even if there were lots more SDRs it is not clear why governments would want to hold them.
ECONOMIST: Is there a better way to organise the world��s currencies?
The IMF's members agree on periodic allocations of SDRs, which countries can convert into other currencies if need be.
ECONOMIST: Is there a better way to organise the world��s currencies?
If China could swap dollars for SDRs, some exchange-rate risk would be shifted to the other members of the IMF.
ECONOMIST: Is there a better way to organise the world��s currencies?
Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF and SDRs were born.
SDRs' potential is limited by the fact that only governments use them.
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SDRs operate as supplements to the existing reserves of IMF member nations.
Only if the IMF evolved into a global central bank able to issue them at speed could SDRs truly become a central reserve asset.
ECONOMIST: Is there a better way to organise the world��s currencies?
SDRs are monetary units used by the IMF for international reserves.
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Another alternative is a greater reliance on SDRs, the IMF's quasi-currency, which operates as a claim on a basket of currencies: the dollar, euro, sterling and yen.
However, use of SDRs has never really taken off.
ECONOMIST: Is there a better way to organise the world��s currencies?
Instead of reducing the role of the U.S. dollar, Zhou may be asking for a greater role of the Chinese currency in "special drawing rights" (SDRs), an international type of reserve currency established in 1969 by the International Monetary Fund.
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