What is an SDR (Special Drawing Right)?

The SDR, or Special Drawing Right, is defined as a basket of currencies which today consists of the euro, Japanese yen, pound sterling and U.S. dollar, according to the International Monetary Fund.

An SDR is an international reserve asset created by the International Monetary Fund in 1969 to supplement the existing official reserves of member countries.

The IMF explains on its web site:

“Today, the SDR has only limited use as a reserve asset, and its main function is to serve 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. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions."