IMF allocates $17.86 billion to India under SDR

• The International Monetary Fund (IMF) has allocated 12.57 billion Special Drawing Rights (SDR) (equivalent to around $17.86 billion at the latest exchange rate) to India on August 23, 2021.
• Now the total SDR holdings of India is SDR 13.66 billion which is equivalent to around $19.41 billion at the latest exchange rate.
• IMF allocates SDR to its members in proportion to their existing quotas in the Fund.

Special Drawing Rights (SDRs):

• The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.
• The value of the SDR is calculated from a weighted basket of major currencies, including the U.S. dollar, the euro, Japanese yen, Chinese yuan, and the British pound.
• SDRs are allocated by the IMF to its member countries and are backed by the full faith and credit of the member countries' governments.
• The SDR serves as the unit of account of the IMF and other international organizations.
• The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members.
• SDRs can be exchanged for freely usable currencies.
• To date, a total of SDR 660.7 billion (equivalent to about US$943 billion) have been allocated.

Currencies included in the SDR basket have to meet two criteria:

1. export criterion
2. freely usable criterion.

• A currency meets the export criterion if its issuer is an IMF member or a monetary union that includes IMF members, and is also one of the top five world exporters.
• For a currency to be determined “freely usable” by the IMF, it has to be widely used to make payments for international transactions and widely traded in the principal exchange markets.
• Freely usable currencies can be used in Fund financial transactions.
• Quota (the amount contributed to the IMF) of a country is denominated (expressed) in SDRs.

International Monetary Fund (IMF):

• The formation of the IMF was initiated in 1944 at the Bretton Woods Conference. IMF came into operation on 27th December 1945.
• Currently, it consists of 189 member countries.
• Headquartered in Washington, D.C
• It was developed as an initiative to promote international monetary cooperation, enable international trade, achieve financial stability, stimulate high employment, diminish poverty in the world, and sustain economic growth.
• India is a founder member of the IMF. India’s Union Finance Minister is the Ex Officio Governor on the IMF’s Board of Governors.
• India is the eighth largest quota holding country at the organization.