Some Facts About the SDR

Date: 2015-10-07; view: 516.

Ex. 15. a) Read the text quickly for the main information.

READING PRACTICE

Ex. 14. Scan the available financial newspapers. Comment on the most important events in the international monetary system today.

C) The IMF.

B) The IDA.

A) The World Bank.

(Use: purpose, to promote, progress, to carry out, to lend, to provide services, to stimulate investments, to borrow, subscription, funds)

(Use: to provide assistance, per capita income, favourable terms, to share the same staff)

(Use: association, to set up, goals, to promote, to facilitate, balanced trade, to establish, payment system, exchange stability, to correct maladjustments, quota, voting power, to consult, mission, to train)

Ex. 13. Prepare a talk on the following:

a) In what ways are individuals affected by international monetary developments?

b) Relations between Russia and international institutions such as GATT, OECD, BIS, UNCTAD, IMF. In what ways do countries benefit from the membership in these organizations?

c) Your opinion on Russia's borrowings from the IMF. Is it the only way to cover the budget deficit?

d) Your opinion on Russia's relations with the Paris Club and the London Club. Do you think that the nation's Soviet-era foreign depts should be written off?

The Special Drawing Right (SDR) is an international reserve asset created by the IMF in October 1969. SDRs first came into operation in 1970 as a sort of reserve currency to supplement national currencies and gold as the medium in which countries hold their reserves. It is a new type of money known as "paper gold" and used as the first international legal tender. The SDR serves as a unit of account for the IMF and a number of other international and regional organizations. It is also used in transactions between governments and central banks. However, the market for SDRs is limited because they are not held by individuals or private businesses. In addition, a few countries peg the exchange rates of their currencies to the SDR.

The SDR was initially valued by the IMF in terms of a fixed quantity of gold and was redefined in June 1974 as a basket of 16 currencies. The SDR has changed over time. For many years it was an oddity fully understood only by a few central bankers. In 1981, however, in an attempt to extend its usage beyond the IMF and its accounts (which are denominated in SDRs), it was simplified. It is now based on a weighted average of only five different currencies: the dollar, the Deutschmark, the French franc, the pound sterling and the yen. The basket is revised every five years. The weights in the basket reflect the relative shares of countries in exports of goods and services and the relative shares of the five currencies in official reserve holdings.

Since the adoption of the First Amendment of the IMF's Articles of Agreement in 1969, the IMF has been authorized to allocate SDR_S to member countries. Decisions to allocate (or cancel) SDKs require an 85 per cent majority vote of the Board of Governors and are made for "basic periods", which, unless otherwise decided, run for five consecutive years. Cumulative allocations to date total SDR 21.4 billion. SDR allocations are distributed in proportion to IMF members' quota shares. Because of considerable expansion in the IMF's membership since SDRs were last allocated in 1981, 38 of the IMF's 181 member countries have never received SDR allocations. Another 37 members have participated in some, but not all allocations.

SDRs are counted as a part of a country's international reserves, along with official holdings of gold, foreign exchange, and reserve position in the IMF. The share of SDRs in global holdings of nongold reserves has declined from 8.4 per cent at the end of 1972, to 6.5 per cent at the end of 1981, and to 2.3 per cent at the end of 1995.

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