Special Drawing Rights (SDR)

From July 1974 to December 1980, the XDR basket consisted of 16 currencies. From January 1981 until the birth of the euro, the basket consisted of only five currencies: the U.S. dollar, the Deutsche mark, the French franc, the British pound, and the Japanese yen. When the euro was introduced in January 1999, it replaced the German mark and French franc; the basket consisted of the U.S. dollar, the euro, the British pound and the Japanese yen. Since 1 October 2016, the XDR basket has included the Chinese renminbi.

This basket is re-evaluated every five years, and the currencies included as well as the weights given to them can then change. A currency's importance is currently measured by the degree to which it is used as a foreign exchange reserve asset and the amount of exports sold in that currency.

Daily Valuation

Because of fluctuating exchange rates, the relative value of each currency varies continuously, as does the value of the XDR. The IMF sets the value of the XDR in terms of U.S. dollars every day. The latest U.S. dollar valuation of the XDR is published on the IMF website.

Exchange

An IMF member country that requires actual foreign currency may sell its SDRs to another member country in exchange for the currency. To sell a part or all its SDRs, the country must find a willing party to buy them. The IMF acts as an intermediary in this voluntary exchange.

Zimbabwe's Special Drawing Rights

Zimbabwe was not in the list of beneficiary countries of immediate debt relief announce by the IMF on 13 April 2020 despite having cleared it’s US$108 million arrears in 2016. This is because it has an outstanding USD$2.2bn owed to the World Bank and the African Development Bank. It is cardinal that if a country has an obligation to the World Bank, it cannot access credit from the World Bank despite an IMF debt clearance.

Zimbabwe has also exhausted its Special Drawing Rights with the International Monetary Fund puncturing any hopes of securing any funding from the global fund. Zimbabwe is in dire need of Debt relief having failed to access funding from the World Bank which allocated US$2.1 billion to struggling third world countries, among which were African states such as the DRC.^[1]

In September 2009, the International Monetary Fund said it had transferred around US$400 million in IMF special drawing rights to Zimbabwe under a US$250 billion global agreement to bolster the reserves of the IMF’s 186 member countries in the wake of the worldwide financial crisis. The IMF said, however, it would withhold another US$102 million of Zimbabwe’s allocation by placing it in escrow until the country had cleared its US$140 million IMF debt.

"The general SDR allocation of SDR 262 million (about $400 million) was deposited to Zimbabwe’s account with the IMF. There is no conditionality on the use of this allocation," an IMF spokesman said. "The special SDR allocation of SDR 66 million ($102 million) will be escrowed until Zimbabwe clears its arrears to the PRGF-ESF Trust," the spokesman added. The SDR, the IMF’s internal unit of account, was then made up of a basket of euro, yen, sterling and dollars and each country’s SDR allocation is based on the size of its IMF quota share, which is broadly calculated according to the size of the economy, trade and reserves.^[2]

In 2015 Zimbabwe maintained foreign exchange reserves of US$130 million from the US$500 million general Special Drawing Rights (SDR) released by the International Monetary Fund to cushion member countries from the global financial crisis more than six years ago. Under the SDR allocations the IMF injected more than US$280 billion to show up member countries’ foreign exchange reserves following a debilitating global financial crisis that wiped out countries’ reserves. Zimbabwe received about $512 million under the SDR allocations which was based on the country’s quota with the IMF. The quotas were based on the size of a country’s economy in relation to the global economy.^[3]

Zimbabwe’s public and publicly guaranteed external debt stood at US$9.8 billion in 2019, according to IMF data. Zimbabwe used its SDR allocation to pay off its IMF debt in 2016. In 2009, the country had received US$400 million worth of SDRs from the IMF. Currently, Zimbabwe has a quota of SDR 707 million. While Zimbabwe has cleared its arrears with the IMF, the country as of 2019 still owed US$687 million to the AfDB, US$1.4 billion to the World Bank and US$322 million to the European Investment Bank. These arrears, under global lending rules, mean the country cannot qualify for new aid from any of the funds. Zimbabwe also owes other bilateral lenders.^[4]

References