The International Monetary Fund (IMF) has transferred SDR 1.017 billion ($1.59 billion) to Ukraine as part of allocating 161.18 billion special drawing rights (SDR) (around $252.08 billion at the current exchange rate), the fund said in a press release.
According to the document, the allocation is based on a long-term
global need to supplement IMF members’ existing reserve assets and it
provides liquidity to the global economic system.
The IMF says that there are no notes or coins denominated in SDRs,
nonetheless the SDR does play a role as an interest-bearing
international reserve asset. The allocation of SDRs by the IMF boosts
member countries’ reserves, because SDRs can be turned into usable
currencies. Once the SDRs have been added to a member country’s
official reserves, the country can voluntarily exchange its SDRs for
hard currencies, such as the U.S. dollar, euro, yen, or pound sterling,
through voluntary trading arrangements with other IMF member countries.
The IMF also says that Ukraine, along with other countries that
joined the fund after 1981 and have never received SDRs, will get an
additional SDR 292 million ($457 million) as part of another allocation
of SDR 21.45 billion ($33.4 billion).
General allocations of SDRs are made as a percentage of a member’s
quota with all participants receiving the same percentage. Each member
of the SDR Department gets an amount of SDRs that is equivalent to
74.13% of their quota. With the two allocations totaling roughly $283
billion, the outstanding stock of SDRs would increase nearly ten-fold
to total about $316 billion, reads the statement.
The SDR was created by the IMF in 1969 to support the Bretton Woods
fixed exchange rate system. However, only a few years later, the
Bretton Woods system collapsed and the major currencies shifted to a
floating exchange rate regime. In addition, the growth in international
capital markets facilitated borrowing by creditworthy governments. Both
of these developments lessened the need for SDRs. After the collapse of
the Bretton Woods system in 1973, however, the SDR was redefined as a
basket of currencies, today consisting of the euro, Japanese yen, pound
sterling, and U.S. dollar.
