Context:

India will not support a general allocation of new ‘Special Drawing Rights’ by the International Monetary Fund as it might not be effective in easing coronavirus-driven financial pressure.

About:

• The Special Drawing Rights (SDR) is an international reserve asset, created by the International Monetary Fund in 1969 to supplement its member countries’ official reserves. The SDR serves as the unit of account of the IMF and some other international organizations.
• The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.
• The value of the SDR is based on a basket of five currencies:
  • the U.S. dollar
  • The euro
  • The Chinese renminbi
  • The Japanese yen
  • The British pound sterling.

India is opposing SDR allocation

• The new SDR allocation would provide all 189 members with new foreign exchange reserves with no conditions.
• Such a major liquidity injection could produce potentially costly side effects if countries used the funds for “extraneous” purposes.

The SDR interest rate (SDRi):

• The SDR provides the basis for calculating the interest rate charged to members on their non-concessional borrowing from the IMF and paid to members for their remunerated creditor positions in the IMF.
• It is also the interest paid to members on their SDR holdings and charged on their SDR allocation.