CEO’s office revealedInternational Monetary Fund For the Arab countries and the Maldives, under the supervision of Dr. Mahmoud Mohieldin, Executive Director, in the first issue of the membership report of the IMF, that on March 23, the Council approved a general allocation of 650 million SDRs, noting that since March 2020, many leaders, thinkers and organizations have called Civil society to such an allocation to meet the global long-term need to supplement reserve assets.
He added that the office, along with like-minded managers, supports the allocation of special drawing rights in the Executive Board, explaining that the staff of the International Monetary Fund will work to strengthen the mechanism of voluntary “recycling” for SDRs, (the practice of re-lending SDRs by countries The same strong external positions of countries that need it).
He said that a number of proposals were being considered, including expanding the use of SDRs beyond low-income countries to support middle-income countries, and supporting countries’ efforts to achieve sustainability goals.
The board meeting will be held in June, where the executives will reach a decision, if the board decides to go ahead, the IMF governors will receive notification to vote on it in July, and the SDR is expected to be allocated in August.
The Special Drawing Right is an international reserve asset that was introduced by the Fund in 1969, to complement the official assets of member countries, according to the International Monetary Fund.
So far, 204.2 billion SDR units (equivalent to 291 billion US dollars) have been distributed to member countries, of which 182.6 billion units were distributed in 2009 after the global financial crisis, and the value of the SDR is determined according to a basket of five currencies – US dollar, euro, Chinese yuan, Japanese yen, and British pound.
According to the fund, the SDRs were created to be a complementary international reserve asset, in the context of the Bretton Woods system of fixed exchange rates, and with the collapse of the Bretton Woods system in 1973, and the conversion of major currencies to floating exchange rate systems, reliance on SDRs as a global reserve asset decreased.
Nevertheless, SDR distributions can play a role in providing liquidity and supplementing the official reserves of member countries, as happened in the 2009 distributions, which totaled 182.6 billion SDRs, obtained by member countries in the context of the global financial crisis, The SDR is used as a unit of account in the Fund and some other international organizations.
The SDR is neither a currency nor an entitlement on the fund. Rather, it is a potential entitlement on the currencies of member countries that are freely usable, and special drawing rights can be exchanged for these currencies..
He explained that the value of the SDR was initially defined as equivalent to 0,888671 grams of pure gold – which was equivalent to one US dollar at the time, and after the collapse of the Bretton Woods system, the SDR was redefined as equivalent to a basket of currencies..
The value of the special drawing right against the US dollar is determined daily, based on the spot exchange rates that are announced around noon every day in London, and are published on the Fund’s website..
The components of the SDR basket are reviewed every five years, or earlier if there is a reason to do so, to ensure that they are a correct reflection of the relative importance of currencies in the global trading and financial systems.
The reviews cover the basic elements of the SDR valuation method, including the criteria and indicators used in selecting the currencies for the SDR basket and the initial currency weights used to determine the amounts (number of units) for each currency in the basket.
These currency amounts remain constant over the five-year SDR evaluation period, but the actual weights of the currencies included in the basket fluctuate with the movement of the derivative exchange rates between the basket currencies, and the value of the SDR is determined daily based on the prevailing market exchange rates, and reviews are used. Also in assessing the appropriateness of the financial instruments that make up the interest rate basket on the SDRs.