4 - Special Drawing Rights and Development Assistance

Abstract

Special Drawing Rights (SDRs) were first conceived during the early 1960s when countries were finding it difficult to add to their gold reserves. At the same time, increasing dependence on the U.S. dollars as a major reserve asset was also causing concern. This was how the problem of liquidity came to the front in international monetary circles during the early 1960s, when it mainly concerned the industrial countries that accounted for nearly 75% of the world trade. SDRs were to be operated by an ad hoc department in the Fund. All allocations were to be credited to participating members and withdrawals or receipts debited or credited to their individual accounts. All participants undertook the obligation to give convertible currencies in exchange for SDRs received from other members in an amount double their allocations when requested to do so by the Fund. While SDRs in some way represented an international currency that could be freely used for settling balance of payments commitments without being subject to consultations with and conditions imposed by the Fund and for getting allocation that did not require any parting of real resources, the rules governing their creation and use provided ample safeguards against both global inflation (or deflation) and individual extravagances or hardships.