History
Special drawing rights were created by the IMF in 1969 and were intended to be an asset held in foreign exchange reserves under the Bretton Woods system of fixed exchange rates. After the collapse of that system in the early 1970s the SDR has taken on a far less important role. Acting as the unit of account for the IMF has been its primary purpose since 1972.
The IMF itself calls the current role of the SDR "insignificant". Developed countries, who hold the greatest number of SDRs, are unlikely to use them for any purpose. The only actual users of SDRs may be those developing countries that see them as "a rather cheap line of credit".
One reason SDRs may not see much use as foreign exchange reserve assets is that they must be exchanged into a currency before use. This is due in part to the fact private parties do not hold SDRs: they are only used and held by IMF member countries, the IMF itself, and a select few organizations licensed to do so by the IMF. Basic functions of foreign exchange reserves, such as market intervention and liquidity provision, as well as some less prosaic ones, such as maintaining export competitiveness via favorable exchange rates, cannot be accomplished directly using SDRs. This fact has led the IMF to label the SDR as an "imperfect reserve asset".
Another reason they may see little use is that the number of SDRs in existence is relatively few. As of January 2011, SDRs represented less than 4% of global foreign exchange reserve assets. To function well a foreign exchange reserve asset must have sufficient liquidity, but SDRs, due to their small number, may be perceived to be an illiquid asset. The IMF says, "expanding the volume of official SDRs is a prerequisite for them to play a more meaningful role as a substitute reserve asset".
Read more about this topic: Special Drawing Rights
Famous quotes containing the word history:
“It would be naive to think that peace and justice can be achieved easily. No set of rules or study of history will automatically resolve the problems.... However, with faith and perseverance,... complex problems in the past have been resolved in our search for justice and peace. They can be resolved in the future, provided, of course, that we can think of five new ways to measure the height of a tall building by using a barometer.”
—Jimmy Carter (James Earl Carter, Jr.)
“What you don’t understand is that it is possible to be an atheist, it is possible not to know if God exists or why He should, and yet to believe that man does not live in a state of nature but in history, and that history as we know it now began with Christ, it was founded by Him on the Gospels.”
—Boris Pasternak (1890–1960)
“There is one great fact, characteristic of this our nineteenth century, a fact which no party dares deny. On the one hand, there have started into life industrial and scientific forces which no epoch of former human history had ever suspected. On the other hand, there exist symptoms of decay, far surpassing the horrors recorded of the latter times of the Roman empire. In our days everything seems pregnant with its contrary.”
—Karl Marx (1818–1883)