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What are SDRs in forex reserves?

Answer:

SDRs

SDR stands for special drawing rights. They are a product of the International Monetary Fund.

Originally, when exchange rates were fixed, countries had to hold reserves of gold (or hard currency) against their currency outstanding in order for their currency to be exchangeable. There wasn't enough gold to serve this purpose, so the IMF created SDRs. SDRs represent "shares" in a basket of hard currencies. (Today those are the euro, yen, British pound, and U.S. dollar.) When first used, 1 SDR equaled 1 US dollar which equaled just under 1 gram of gold.

SDRs aren't really used for currency reserves any more, especially after exchange rates and the price of gold started to float in 1972-73. You can think of SDRs more as the "currency" of the IMF and some other organizations. They also are given to IMF member countries in exchange for their "quotas," their up-front payments to the IMF to finance its operation.

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Crystal

First answer by Crystal. Last edit by DogFace69. Contributor trust: 0 [recommend contributor ]. Question popularity: 210 [recommend question].

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