IMF Work Progresses on 2015 SDR Basket Review

SUMMARY

The IMF Executive Board will formally review the composition and valuation of the Special Drawing Rights (SDR) basket toward the end of the year.

 
FREE EXCERPT

  • SDR review takes place every five years
  • Staff paper lays out initial considerations; formal Board meeting late 2015
  • Focus on Chinese renminbi for meeting inclusion criteria
  • As part of this process, the IMF’s Executive Directors recently held an informal meeting to have a first discussion on the review of the valuation of the SDR, an international reserve asset created by the IMF in 1969 to supplement its member countries’ official reserves.

    The SDR’s value is currently based on a basket composed of the U.S. dollar, the euro, the pound sterling and the Japanese yen. The IMF reviews the SDR basket valuation method every five years to ensure that it reflects the relative importance of major currencies in the world’s trading and financial systems, with the aim of enhancing the attractiveness of the SDR as a reserve asset.

    In an interview, Siddharth Tiwari, Director of the IMF’s Strategy, Policy, and Review Department, discusses the details of the SDR review process.

    IMF Survey : The IMF’s Executive Directors just held an informal meeting on the review of the SDR basket. What was the purpose of the meeting?

    Tiwari: Every five years, the IMF reviews the status of currencies within the SDR and opens up a window for inclusion of additional currencies. 2015 is a review year. As a first step, the Executive Directors discussed informally a staff paper that laid out initial considerations for the review. The paper provided a status report on the progress made so far and clarified a number of technical issues, such as the applicable legal framework for the review, the scope of the review, operational implications and next steps.

    The Executive Board will formally discuss the review toward the end of the year.

    IMF Survey: What are the criteria for including a currency in the SDR basket?

    Tiwari: The criteria, last updated in 2000, establish that the SDR basket comprises the four currencies that are issued by members or currency unions whose exports of goods and services had the largest value over a five-year period, and have been determined by the Fund to be "freely usable."

    The export criterion aims to ensure that currencies that qualify for the basket are those issued by members/currency unions that play a central role in the global economy. The requirement for currencies in the SDR basket to be also freely usable was incorporated in 2000 to reflect the importance of financial transactions in valuing the SDR basket.

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