(Question #2) IMF
members often need to buy SDRs to discharge obligations to the IMF, or they may
wish to sell SDRs in order to adjust the composition of their reserves. The IMF
may act as an intermediary between members and prescribed holders to ensure
that SDRs can be exchanged for freely usable currencies""... Is the SDR
is a kind of security paper ? If India holding this SDR means, then it can able
to fill its forex reserves with dollar by giving this SDR to any other nation
which has dollar reserve?
Features of SDR:
·
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. Holders
of SDRs can obtain these currencies in exchange for their SDRs in two ways
o
First, through the arrangement of voluntary
exchanges between members; and
o
Second, by the IMF designating members with
strong external positions to purchase SDRs from members with weak external
positions.
·
In addition to its role as a supplementary
reserve asset, the SDR serves as the unit of account of the IMF and some
other international organizations.
Origin and background of SDR:
·
Origin of SDR was created by the IMF in
1969 to support the Bretton Woods fixed exchange rate system.
·
Contemporary role of SDR came to prominence in 2009 SDR allocations
totaling SDR 182.6 billion have played a critical role in providing
liquidity to the global economic system and supplementing member countries’
official reserves amid the global financial crisis
Basket of SDR
·
SDR basket consists of the euro, Japanese yen,
pound sterling, and U.S. dollar.
·
Basket composition is reviewed every five years
by the Executive Board.
·
In the most recent review (in November 2010),
the weights of the currencies in the SDR basket were revised based on the value
of the exports of goods and services and the amount of reserves denominated in
the respective currencies that were held by other members of the IMF.
·
In
October 2011, the IMF Executive Board held the view that the current criteria
for SDR basket selection remained appropriate. Next review will take place
by 2015
SDR interest rate
·
The interest paid to members on their SDR
holdings and charged on their SDR allocation, and the interest paid to members
on a portion of their quota subscriptions.
·
SDR interest rate is determined weekly.
Allocation of SDRs
·
General allocations of SDRs is based on a
long-term global need to supplement existing reserve assets. General SDR
allocations have been made only three times- to help mitigate the effects of
the financial crisis, a third general SDR allocation of SDR 161.2 billion was
made on August 28, 2009
·
SDRs are given to member countries by the IMF. Using
SDRs they can buy other currencies. They are issued to member countries in
proportion to their share in IMF. If they use it they have to pay interest.
Members not using SDRs will get interest. For a country SDRs are as good as
forex reserves.
·
General allocations of SDRs have to be based on
a long-term global need to supplement existing reserve assets. Decisions on
general allocations are made for successive basic periods of up to five years,
although general SDR allocations have been made only three times. The first
allocation was for a total amount of SDR 9.3 billion, distributed in 1970-72,
and the second allocated SDR 12.1 billion, distributed in 1979-81. These two
allocations resulted in cumulative SDR allocations of SDR 21.4 billion. To help
mitigate the effects of the financial crisis, a third general SDR allocation of
SDR 161.2 billion was made on August 28, 2009.
·
Separately, the Fourth Amendment to the Articles
of Agreement became effective August 10, 2009 and provided for a special
one-time allocation of SDR 21.5 billion. The purpose of the Fourth Amendment
was to enable all members of the IMF to participate in the SDR system on an
equitable basis and rectify the fact that countries that joined the IMF after
1981—more than one fifth of the current IMF membership—never received an SDR
allocation until 2009. The 2009 general and special SDR allocations together
raised total cumulative SDR allocations to SDR 204 billion.
(Question #3) Reserve
Tranche Position (RTP) of any country can be defined as the difference between
Member's quota and IMF's holding of its currency."". How this is
happening in India ?
Reserve Tranche Position (RTP) of any country can be defined
as the difference between Member's quota and IMF's holding of its currency.
It is accounted among a country's foreign exchange reserve. Reserve Bank
of India (RBI) gives update on the situation of current Reserve Tranche
Position (RTP) in its weekly statistical supplement. its value keeps on
fluctuating due to frequent changes in world major currencies prizes.
No comments:
Post a Comment