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Special drawing rights

Discuss how the special drawing rights (SDR) are formed. And also, explain the circumstances due to which SDR was created.

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SDR was produced by IMF in the year 1970 as new reserve asset, partly in order to alleviate load over the U.S. dollar as key reserve currency. SDR is the basket currency including five major currencies, i.e., German mark, U.S. dollar, French franc, Japanese yen, and British pound. Presently, the dollar receives a 40% weight, yen 17%, mark 21% and franc 11%, and pound 11%. Weights for several currencies tend to vary over the time, reflecting the relative importance of each and every currency in the international trade and finance.

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