US Dollar vs. SDR

What Is the IMF's Special Drawing Right (SDR)?

The Special Drawing Right (SDR) is an international reserve asset created by the International Monetary Fund (IMF) in 1969. It was designed to supplement member countries’ official reserves and support the Bretton Woods fixed exchange rate system, which was facing strains at the time.

Unlike a currency, the SDR is not used directly for everyday transactions or held by individuals. Instead, it represents a potential claim on the freely usable currencies of IMF member countries. Its value is based on a basket of five major international currencies:

• U.S. Dollar (USD)
• Euro (EUR)
• Chinese Renminbi (CNY)
• Japanese Yen (JPY)
• British Pound Sterling (GBP)

The SDR serves as the unit of account for the IMF and some other international organizations. Countries can exchange SDRs for hard currencies during times of balance-of-payment needs through arrangements with the IMF and other members.

How Is the Value of an SDR Determined?

The value of the SDR is recalculated daily by the IMF. It is based on market exchange rates of the basket currencies relative to the U.S. dollar. The exact weights of each currency are reviewed every five years. As of the most recent valuation (2022), the approximate currency weights are:

• USD: 43.38%
• EUR: 29.31%
• CNY: 12.28%
• JPY: 7.59%
• GBP: 7.44%

This means that the SDR’s value moves depending on the strength or weakness of these currencies against the U.S. dollar.

Understanding the Value of the U.S. Dollar Against the SDR Over Time

Since the SDR is a weighted average of five currencies, the value of the U.S. dollar against the SDR can be interpreted as an index of the dollar’s strength relative to a diversified global currency basket.

Historically, the U.S. dollar has fluctuated in value against the SDR due to changes in exchange rates, interest rates, inflation differentials, and shifts in global monetary policy. Here are some key observations:

• 1980s–1990s: The dollar generally weakened against the SDR as it depreciated relative to the yen and Deutsche mark (precursors to the current basket).
• 2000s: The dollar saw periods of both appreciation and depreciation, influenced by monetary easing, trade balances, and financial crises.
• 2010s–2020s: After the global financial crisis, and especially during the COVID-19 pandemic, the dollar remained relatively strong due to safe-haven demand. However, inclusion of the Chinese renminbi in 2016 added complexity to the SDR’s valuation.

For example, if the value of 1 SDR was 1.50 USD in 2000 and 1.35 USD in 2024, this would suggest that the dollar had appreciated against the SDR basket over that time. Conversely, a move from 1.35 to 1.50 would indicate a weakening dollar.

Why Does It Matter?

Understanding the dollar's valuation against the SDR can offer insights into:

• Global investor confidence in the U.S. dollar
• Relative strength of other major economies
• Shifts in global monetary influence (e.g., China's rising role)
• Resilience of the U.S. economy during global crises

Central banks and policymakers monitor SDR-based valuation trends to assess the health of international monetary systems and plan for potential currency interventions or reserve allocations.

Conclusion

The SDR is not a currency but a powerful economic indicator and financial instrument. Observing how the U.S. dollar performs against the SDR over time can reveal trends in global finance, monetary policy, and economic power. As the international landscape evolves, the SDR will likely continue to play a central role in the IMF’s framework for global economic stability.

See also plots of SDR vs USD (and vice versa).