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For immediate release: October 29, 2010

Dallas Fed Publication Spotlights IMF’s Special Drawing Rights

DALLAS—While the dollar’s supremacy as a reserve currency isn’t likely to fade soon, the International Monetary Fund’s substantial allocation of special drawing rights in 2009 brought them back into the spotlight, according to the latest issue of the Federal Reserve Bank of Dallas’ Economic Letter.

In “Financial Crisis Revives Interest in Special Drawing Rights,” research economist Simona Cociuba examines special drawing rights (SDRs), a reserve asset valued by a basket of currencies and allocated by the International Monetary Fund (IMF) to its member nations.

In 1978, the IMF set a goal of making the SDR “the principal reserve asset in the international monetary system,” but that goal has not been met, according to Cociuba.

“It isn’t surprising that proposals for an SDR-based international monetary system were dusted off during the recent crisis as countries with large U.S. dollar reserves—seeing the U.S. monetary base expand—feared the value of their holdings would be undermined,” Cociuba writes.

Reasons for the SDR’s limited role including poor liquidity, lack of market pricing and the relatively small amount outstanding, she states.

“But perhaps most significant is that once worries regarding a U.S. dollar crisis fade, SDRs simply fall out of fashion,” Cociuba says.

Increasing the SDR’s popularity today would require more regular allocations from the IMF and agreement on the same difficult issues that have stalled previous negotiations on SDRs, Cociuba notes.

“It remains to be seen whether recent SDR allocations were a short-term response to the global crisis or the first of many steps in monetary system reform,” she writes.


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