Monday, November 14, 2011

IMF - IMF Executive Board Discusses Criteria for Broadening the SDR Currency Basket

IMF Executive Board Discusses Criteria for Broadening the SDR Currency Basket
Public Information Notice (PIN) No. 11/137
November 11, 2011

On October 28, 2011, the Executive Board of the International Monetary Fund (IMF) discussed a staff paper on Criteria for Broadening the SDR Currency Basket.

"...The SDR (Special Drawing Right) is a global reserve asset created by the IMF to address long-term global liquidity needs. Since the 2000 decision on the SDR valuation basket, the weighted basket consists of the four currencies that are (i) issued by Fund members (or monetary unions of Fund members) which are the largest exporters; and (ii) have been determined by the Fund to be a “freely usable” currency—a currency that is widely used for international payments and is widely traded. These currencies are currently the U.S. dollar, the euro, pound Sterling and the Japanese yen. The freely usable currency concept has been at the core of the IMF’s operations since the Second Amendment of the Articles in 1978. Considerations relating to this concept have been taken into account for SDR valuation since that time, but a formal requirement that currencies in the SDR basket be freely usable was adopted only in 2000.
The staff paper responds to calls by the International Monetary and Financial Committee and the Ministers from the Group of Twenty Countries to develop a criteria-based path to broaden the composition of the SDR basket. The paper is also part of the follow-up work program on the SDR agreed at the conclusion of the 2010 Review of SDR Valuation (see Public Information Notice No. 10/149) and of the IMF’s work on reform of the international monetary system and the role of the SDR (see Public Information Notice No. 11/22 and the accompanying paper).
The paper reviews the criteria for the valuation of the SDR basket, guided by long-standing principles underlying SDR valuation. It also reflects considerations related to changes in the global economy and to the role of the SDR in promoting the stable evolution of the international monetary system. The paper discusses two options for the freely usable currency criterion in that context. The first option is to maintain it as a criterion for the SDR basket valuation, but to update and clarify the related indicators. The suggested indicators include the currency composition of foreign exchange reserves, international debt securities and international bank liabilities, and foreign exchange spot market turnover. The second option is to replace the freely usable currency criterion with a tailored new criterion, and to identify suitable indicators, that preserve the status of the SDR as reserve currency. The paper also reviews issues related to the exports criterion and to the number of currencies in the SDR basket..."


Source II for: Criteria for Broadening the SDR Currency Basket.

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