20th+

In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic bubble, or a large-scale anthropogenic or natural disaster (e.g. a pandemic). In the United States, it is defined as "a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales". In the United Kingdom, it is defined as a negative economic growth for two consecutive quarters.

Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply or increasing government spending and decreasing taxation.

Put simply, a recession is the decline of economic activity, which means that the public has stopped buying products for a while which can cause the downfall of GDP after a period of economic expansion (a time where products become popular and the income profit of a business becomes large). This causes inflation (the rise of product prices). In a recession, the rate of inflation slows down, stops, or becomes negative.

An economic depression is a period of sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a recession, which is a slowdown in economic activity over the course of a normal business cycle.

Economic depressions are characterized by their length, by abnormally large increases in unemployment, falls in the availability of credit (often due to some form of banking or financial crisis), shrinking output as buyers dry up and suppliers cut back on production and investment, more bankruptcies including sovereign debt defaults, significantly reduced amounts of trade and commerce (especially international trade), as well as highly volatile relative currency value fluctuations (often due to currency devaluations). Price deflation, financial crises, stock market crash, and bank failures are also common elements of a depression that do not normally occur during a recession.

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The Great Depression was a severe worldwide economic depression that took place mostly during the 1930s, beginning in the United States. The timing of the Great Depression varied across the world; in most countries, it started in 1929 and lasted until the late 1930s. It was the longest, deepest, and most widespread depression of the 20th century. The Great Depression is commonly used as an example of how intensely the global economy can decline.

The Great Depression started in the United States after a major fall in stock prices that began around September 4, 1929, and became worldwide news with the stock market crash of October 29, 1929, (known as Black Tuesday). Between 1929 and 1932, worldwide gross domestic product (GDP) fell by an estimated 15%. By comparison, worldwide GDP fell by less than 1% from 2008 to 2009 during the Great Recession. Some economies started to recover by the mid-1930s. However, in many countries, the negative effects of the Great Depression lasted until the beginning of WW2.

The Great Depression had devastating effects in both rich and poor countries. Personal income, tax revenue, profits and prices dropped, while international trade fell by more than 50%. Unemployment in the U.S. rose to 23% and in some countries rose as high as 33%. Cities around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming communities and rural areas suffered as crop prices fell by about 60%. Facing plummeting demand with few alternative sources of jobs, areas dependent on primary sector industries such as mining and logging suffered the most.

Economic historians usually consider the catalyst of the Great Depression to be the sudden devastating collapse of U.S. stock market prices, starting on October 24, 1929. However, some dispute this conclusion and see the stock crash as a symptom, rather than a cause, of the Great Depression.

Even after the Wall Street Crash of 1929, where the Dow Jones Industrial Average dropped from 381 to 198 over the course of two months, optimism persisted for some time. The stock market turned upward in the early 1930, with the Dow returning to 294 (pre-depression levels) in April 1930, before steadily declining for years, to a low of 41 in 1932.

At the beginning, governments and businesses spent more in the first half of 1930 than in the corresponding period of the previous year. On the other hand, consumers, many of whom suffered severe losses in the stock market the previous year, cut their expenditures by 10%. In addition, beginning in the mid-1930s, a severe drought ravaged the agricultural heartland of the U.S.

Interest rates dropped to low levels by the mid-1930, but expected deflation and the continuing reluctance of people to borrow meant that consumer spending and investment remained low. By May 1930, automobile sales declined to below the levels of 1928. Prices, in general, began to decline, although wages held steady in 1930. Then a deflationary spiral started in 1931. Farmers faced a worse outlook; declining crop prices and a Great Plains drought crippled their economic outlook. At its peak, the Great Depression saw nearly 10% of all Great Plains farms change hands despite federal assistance.

The decline in the U.S. economy was the factor that pulled down most other countries at first; then, internal weaknesses or strengths in each country made conditions worse or better. Frantic attempts by individual countries to shore up their economies through protectionist policies – such as the 1930 U.S. Smoot–Hawley Tariff Act and retaliatory tariffs in other countries – exacerbated the collapse in global trade, contributing to the depression. By 1933, the economic decline pushed world trade to one third of its level compared to four years earlier.

The Great Recession was a period of marked general decline (recession) observed in national economies globally that occurred between 2007 and 2009. The scale and timing of the recession varied from country to country. At the time, the International Monetary Fund (IMF) concluded that it was the most severe economic and financial meltdown since the Great Depression. One result was a serious disruption of normal international relations.

The causes of the Great Recession include a combination of vulnerabilities that developed in the financial system, along with a series of triggering events that began with the bursting of the United States housing bubble in 2005–2006. When housing prices fell and homeowners began to abandon their mortgages, the value of mortgage-backed securities held by investment banks declined in 2007–2008, causing several to collapse or be bailed out in September 2008. This 2007–2008 phase was called the subprime mortgage crisis. The combination of banks unable to provide funds to businesses, and homeowners paying down debt rather than borrowing and spending, resulted in the Great Recession that began in the U.S. officially in December 2007 and lasted until June 2009, thus extending over 19 months. As with most other recessions, it appears that no known formal theoretical or empirical model was able to accurately predict the advance of this recession, except for minor signals in the sudden rise of forecast probabilities, which were still well under 50%.

The recession was not felt equally around the world; whereas most of the world's developed economies, particularly in North America, South America and Europe, fell into a severe, sustained recession, many more recently developed economies suffered far less impact, particularly China, India and Indonesia, whose economies grew substantially during this period. Similarly, the oceanic region suffered minimal impact, in part due to their proximity to the Asian markets.

The COVID-19 recession, which began in February 2020, is the worst global economic crisis since the Great Depression.

Following a global economic slowdown during 2019 that saw stagnation of stock markets and consumer activity, the COVID-19 lockdowns and other precautions taken during the COVID-19 pandemic threw the global economy into crisis. Within seven months, every advanced economy had fallen to recession or depression, while all emerging economies were in recession. Modeling by the World Bank suggests that in some regions a full recovery will not be achieved until 2025 or beyond.

The recession has seen unusually high and rapid increases in unemployment in many countries. By October, more than 10 million unemployment cases had been filed in the United States, swamping state-funded unemployment insurance computer systems and processes. The United Nations (UN) predicted in April 2020 that global unemployment will wipe out 6.7% of working hours globally in the second quarter of 2020—equivalent to 195 million full-time workers.] In some countries, unemployment is expected to be at around 10%, with more severely affected nations from the COVID-19 pandemic having higher unemployment rates. Developing countries were also being affected by a drop in remittances, exacerbating COVID-19 pandemic-related famines.

The crisis' onset coincided with the 2020 stock market crash, which saw major indices drop 20 to 30% in late February and March. Recovery began in early April 2020, and many market indices recovered or even set new records by late 2020.

The recession and the 2020 Russia–Saudi Arabia oil price war led to a drop in the price of oil; the collapse of tourism, the hospitality industry, and the energy industry; and a downturn in consumer activity in comparison to the previous decade.

The COVID-19 pandemic had a deep impact on the Canadian economy, leading it into a recession. The governments' social distancing rules had the effect of limiting economic activity in the country. Companies started considering mass-layoffs of workers, which was largely prevented by the Canada Emergency Wage Subsidy. But despite these efforts, Canada's unemployment rate was 13.5% in May 2020, the highest it has been since 1976.

Many large-scale events that planned to take place in 2020 in Canada were canceled or delayed. This includes all major sporting and artistic events. Canada's tourism and air travel sectors were hit especially hard due to travel restrictions. Some farmers feared a labour shortfall and bankruptcy.

COVID-19 affected consumer behaviours. In the early stages of the pandemic, Canadian grocery stores were the site of large-scale panic buying which lead to many empty shelves. By the end of March, most stores were closed to walk-in customers with the exception of grocery stores and pharmacies, which implemented strong social distancing rules in their premises. These rules were also implemented in other Canadian businesses as they began to re-open in the following months.

Reserve Currencies

Reserve Currencies: Why are they important for an economy? - EcAlt > .

23-1-16 Bretton Woods - Why it's Important - EEE > .

2019 (Bretton Woods, Gold Standard) New World Order - Caspian > .

2022 Was Dropping The Gold Standard A Mistake? - EcEx > .

Impact of Mounting Sovereign Debts - "Autodidact" - Goodfellows > .

Fedspeak - FOMC, Quantitative Easing, Asset Bubble, Zero Bound > .

1931-9-21 Britain abandoned gold standard; Parliament's Amendment Act - HiPo > .

How Bitcoin works - 3B1B > .

Debt ..

24-10-15 How the US Debt Crisis Affects Us All - Cold Fusion > .

Deflation ..

24-3-5 Xina’s Deflation Is More Dangerous Than High Inflation | WSJ > .

24-3-22 Things I (Do) Worry About: Deflation || Peter Zeihan > .

15-1-23 A Japanese Lesson in Deflation for Europe - WSJ > .

Currencies - Way of the Triffin - Weigh >> .

Economics - PrDaEx >> .

Beyond Bretton Woods - Weaponi$ation - Weighs 'n Means >> .

Currency Manipulation - Weighs 'n Means >> .
Printing Money - Central Banks, Fed - Weighs 'n Means >> .
War, Money, Civilization - Weighs 'n Means >> .

>> Weighs 'n Means >>

● Economic Principles ..

Blockchains, Cryptocurrencies, NFTs ↠

Currency Manipulation ..

Devaluation Risks - X ..

Economic Recessions and Recoveries ..

Energy as Currency ..

Inflation ..

Mid-COVID Inflation - 2021 →

MMT - Modern Monetary Theory ..

Monetarism ..

Ordoliberalism (Wirtschaftswunder) ..

85-9-22 Plaza Accord (G5) ..

Recession, Depression ..

Stimulus Impacts ..

Supply and Demand ↠

Turkey's Economic Problems ..

Reserve currencies are crucial to the stability of any currency. Central banks and institutions use currency reserves to achieve their economic aims. As such, foreign exchange reserves have only grown in importance over time.

A reserve currency (or anchor currency) is a foreign currency that is held in significant quantities by central banks or other monetary authorities as part of their foreign exchange reserves (as cash, sovereign debt, treasury bonds, financial securities, and loans). As of 2020, China holds $1.1Tn of US debt. The reserve currency can be used in international transactions, international investments and all aspects of the global economy. It is often considered a hard currency or safe-haven currency.

Reserve currency status has both benefits (such as lower exchange rate risk and greater buying power) and drawbacks (such as artificially low interest rates that can spur asset bubbles). How? Higher demand for a reserve currency creates lower borrowing costs through depressed bond yields (most reserves are of government bonds). Issuing countries are also able to borrow in their home currencies and are less worried about propping up their currencies to avoid default. Low borrowing costs stemming from issuing a reserve currency may prompt loose spending by both the public and private sectors, which may result in asset bubbles and ballooning government debt.

The U.S. was able to spend freely on stimuli partly because excess Chinese savings were parked in the dollar. This occurrence is not novel; Robert Triffin (of Triffin Dilemma fame) identified this shortcoming while the gold standard was still in place. Failure to control the outflow of currency places weak financial institutions at risk, and criminals love dollars.

The United Kingdom's pound sterling was the primary reserve currency of much of the world in the 19th century and first half of the 20th century. However, by the end of the 20th century, the United States dollar had become the world's dominant reserve currency. The world's need for dollars has allowed the United States government to borrow at lower costs, giving the United States an advantage in excess of $100 billion per year.

Reserve currencies are typically issued by developed, stable countries. The currency most commonly held as a foreign exchange reserve is the U.S. dollar, which, according to the International Monetary Fund (IMF), comprised nearly 62% of allocated reserves as of late 2012. Other currencies held in reserve include the euro, Japanese yen, Swiss franc and pound sterling. The dollar, while still the most widely held reserve currency, has seen increased competition from the euro. The euro has grown from slightly less than an 18% share of allocated reserves, when it was introduced into the financial markets in 1999, to 24% at the end of 2011.

The IMF reports both allocated reserves, meaning that a country has identified the currencies held in reserve, and total foreign exchange holdings. The overall percentage of total holdings that are allocated reserves has fallen steadily over the years, from 74% in 1995 to 55% in 2011. Much of this shift can be explained by changing foreign exchange holdings in emerging and developing countries. In 1995, advanced economies held around 67% of total foreign exchange reserves, with 82% of these being allocated reserves. By 2011, the picture had been flipped on its head: emerging and developing countries held 67% of total reserves, with less than 39% allocated. Emerging countries now hold roughly $6.8 trillion in reserve currency. Between 1995 and 2011, the amount of currency held in reserve increased by over 730%, from around $1.4 trillion to $10.2 trillion.

The currencies of China (the world's 2nd largest economy), Brazil (6th), Russia (9th) and India (10th) - the BRIC countries - are not considered reserve, which is why these countries have been more vocal proponents of the creation of a reserve currency unattached to any one country.

Historically, reserve currencies have come and gone. International currencies in the past have (excluding those discussed below) included the Greek drachma, coined in the fifth century B.C., the Roman denari, the Byzantine solidus and Arab dinar of the middle-ages and the French franc.

The Venetian ducat and the Florentine florin became the gold-based currency of choice between Europe and the Arab world from the 13th to 16th centuries, since gold was easier than silver to mint in standard sizes and transport over long distances. It was the Spanish-American silver dollar, however, which created the first true global reserve currency recognized in Europe, Asia and the Americas from the 16th to 19th centuries due to abundant silver supplies from Spanish America.

While the Dutch guilder was a reserve currency of somewhat lesser scope, used between Europe and the territories of the Dutch colonial empire from the 17th to 18th centuries, it was also a silver standard currency fed with the output of Spanish-American mines flowing through the Spanish Netherlands. The Dutch, through the Amsterdam Wisselbank (the Bank of Amsterdam), were also the first to establish a reserve currency whose monetary unit was stabilized using practices familiar to modern central banking (as opposed to the Spanish dollar stabilized through American mine output and Spanish fiat) and which can be considered as the precursor to modern-day monetary policy.

It was therefore the Dutch which served as the model for bank money and reserve currencies stabilized by central banks, with the establishment of Bank of England in 1694 and the Bank of France in the 19th century. The British pound sterling, in particular, was poised to dislodge the Spanish-American dollar's hegemony as the rest of the world transitioned to the gold standard in the last quarter of the 19th century. At that point, the UK was the primary exporter of manufactured goods and services, and over 60% of world trade was invoiced in pounds sterling. British banks were also expanding overseas; London was the world centre for insurance and commodity markets and British capital was the leading source of foreign investment around the world; sterling soon became the standard currency used for international commercial transactions.

Attempts were made in the interwar period to restore the gold standard. The British Gold Standard Act reintroduced the gold bullion standard in 1925, followed by many other countries. This led to relative stability, followed by deflation, but because the onset of the Great Depression and other factors, global trade greatly declined and the gold standard fell. Speculative attacks on the pound forced Britain entirely off the gold standard in 1931. The United Kingdom's pound sterling was the primary reserve currency until the UK almost bankrupted itself fighting WW1 and WW2 resulting in the Pound losing its status as the world's most important reserve currency. In the 1950s 55% of global reserves were still held in sterling; but the share was 10% lower within 20 years. As of 30 September 2019, the pound sterling represented the fourth largest proportion (by USD equivalent value) of foreign currency reserves.

The establishment of the U.S. Federal Reserve System in 1913 and the economic vacuum following the World Wars facilitated the emergence of the United States as an economic superpower.

In the late 1960s and early 1970s, the system suffered setbacks ostensibly due to problems pointed out by the Triffin dilemma—the conflict of economic interests that arises between short-term domestic objectives and long-term international objectives when a national currency also serves as a world reserve currency. The Triffin dilemma or Triffin paradox was identified in the 1960s by Belgian-American economist Robert Triffin, who pointed out that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, thus leading to a trade deficit.

The use of a national currency, such as the U.S. dollar, as global reserve currency leads to tension between its national and global monetary policy. This is reflected in fundamental imbalances in the balance of payments, specifically the current account, as some goals require an outflow of dollars from the United States, while others require an overall inflow.

After WW2, the international financial system was governed by a formal agreement, the Bretton Woods System. Under this system, the United States dollar (USD) was placed deliberately as the anchor of the system, with the US government guaranteeing other central banks that they could sell their US dollar reserves at a fixed rate for gold.

Specifically, the Triffin dilemma is usually cited to articulate the problems with the role of the U.S. dollar as the reserve currency under the Bretton Woods system. John Maynard Keynes had anticipated this difficulty and had advocated the use of a global reserve currency called 'Bancor'. The bancor was a supranational currency that John Maynard Keynes and E. F. Schumacher conceptualised in the years 1940–1942 and which the United Kingdom proposed to introduce after WW2. The name was inspired by the French banque or ('bank gold'). This newly created supranational currency would then be used in international trade as a unit of account within a proposed multilateral clearing system—the International Clearing Union (which would also need to be founded).

Currently, the IMF's SDRs are the closest thing to the proposed Bancor but they have not been adopted widely enough to replace the dollar as the global reserve currency.

Additionally, in 1971 Nixon suspended the convertibility of the USD to gold, thus creating a fully fiat global reserve currency system.

In the wake of the financial crisis of 2007–2008, the governor of the People's Bank of China explicitly named the reserve currency status of the US dollar as a contributing factor to global savings and investment imbalances that led to the crisis. As such, the Triffin Dilemma is related to the Global Savings Glut hypothesis because the dollar's reserve currency role exacerbates the U.S. current account deficit due to heightened demand for dollars.

Following the 2020 economic recession, the IMF opined about the emergence of "A New Bretton Woods Moment" which could imply the need for a new global reserve currency system. (see: § Calls for an alternative reserve currency)

Economists debate whether a single reserve currency will always dominate the global economy. Many have recently argued that one currency will almost always dominate due to network externalities (sometimes called "the network effect"), especially in the field of invoicing trade and denominating foreign debt securities, meaning that there are strong incentives to conform to the choice that dominates the marketplace. The argument is that, in the absence of sufficiently large shocks, a currency that dominates the marketplace will not lose much ground to challengers.

However, some economists, such as Barry Eichengreen, argue that this is not as true when it comes to the denomination of official reserves because the network externalities are not strong. As long as the currency's market is sufficiently liquid, the benefits of reserve diversification are strong, as it insures against large capital losses. The implication is that the world may well soon begin to move away from a financial system dominated uniquely by the US dollar. In the first half of the 20th century, multiple currencies did share the status as primary reserve currencies. Although the British Sterling was the largest currency, both the French franc and the German mark shared large portions of the market until WW1, after which the mark was replaced by the dollar. Since WW2, the dollar has dominated official reserves, but this is likely a reflection of the unusual domination of the American economy during this period, as well as official discouragement of reserve status from the potential rivals, Germany and Japan.

The top reserve currency is generally selected by the banking community for the strength and stability of the economy in which it is used. Thus, as a currency becomes less stable, or its economy becomes less dominant, bankers may over time abandon it for a currency issued by a larger or more stable economy. This can take a relatively long time, as recognition is important in determining a reserve currency. For example, it took many years after the United States overtook the United Kingdom as the world's largest economy before the dollar overtook the pound sterling as the dominant global reserve currency. In 1944, when the US dollar was chosen as the world reference currency at Bretton Woods, it was only the second currency in global reserves.

The G7 (G8) also frequently issues public statements as to exchange rates. In the past due to the Plaza Accord, its predecessor bodies could directly manipulate rates to reverse large trade deficits.

A report released by the United Nations Conference on Trade and Development in 2010, called for abandoning the U.S. dollar as the single major reserve currency. The report states that the new reserve system should not be based on a single currency or even multiple national currencies but instead permit the emission of international liquidity to create a more stable global financial system.

Countries such as Russia and the People's Republic of China, central banks, and economic analysts and groups, such as the Gulf Cooperation Council, have expressed a desire to see an independent new currency replace the dollar as the reserve currency. However, it is recognized that the US dollar remains the strongest reserve currency.

On 10 July 2009, Russian President Medvedev proposed a new 'World currency' at the G8 meeting in London as an alternative reserve currency to replace the dollar.

At the beginning of the 21st century, gold and crude oil were still priced in dollars, which helps export inflation and has brought complaints about OPEC's policies of managing oil quotas to maintain dollar price stability.

Some have proposed the use of the International Monetary Fund's (IMF) special drawing rights (SDRs) as a reserve. China has proposed using SDRs, calculated daily from a basket of U.S. dollar, euro, Japanese yen and British pounds, for international payments.

On 3 September 2009, the United Nations Conference on Trade and Development (UNCTAD) issued a report calling for a new reserve currency based on the SDR, managed by a new global reserve bank. The IMF released a report in February 2011, stating that using SDRs "could help stabilize the global financial system."

United States dollar .
Euro .
Dutch guilder .
Pound sterling .
Japanese yen .
Swiss franc .
Canadian dollar .
Calls for an alternative reserve currency .
Chinese yuan .

Commodity currency .
Exorbitant privilege .
Floating currency .
Foreign exchange reserves .
Cryptocurrency .
Fiat currency .
Hard currency .
Krugerrand .
Seigniorage .
Special drawing rights .
Triffin dilemma .
World currency .

Primer On Reserve Currencies i

21-11-24 Indian government set to ban cryptocurrencies:

A non-fungible token (NFT) is a unique and non-interchangeable unit of data stored on a digital ledger (blockchain). NFTs can be associated with easily-reproducible items such as photos, videos, 3D models, audio, and other types of digital files as unique items (analogous to a certificate of authenticity). NFTs use blockchain technology to provide a public proof of ownership. Copies of the original file are not restricted to the owner of the NFT, and can be copied and shared like any file. The lack of interchangeability (fungibility) distinguishes NFTs from blockchain cryptocurrencies, such as Bitcoin.

NFTs have drawn criticism with respect to the energy cost and carbon footprint associated with validating blockchain transactions as well as its frequent use in art scams. Further criticisms challenge the usefulness of establishing proof of ownership in an unregulated market based on digital files that are easy to copy.

Tuesday, April 10, 2012

SDRs - Special Drawing Rights

2021 What is the SDR? - IMF > .

2016 Explaining SDRs (Special Drawing Rights) - IMF > .

The IMF's Special Drawing Rights (SDR or XDR) - 1 Minute > .

The SDR — Special Drawing Right — is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Read more: https://bit.ly/3iin1gU .

The SDR (IMF) is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. So far SDR 204.2 billion (equivalent to about US$293 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis. 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, and the British pound sterling.

Special drawing rights (SDRs) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). SDRs are units of account for the IMF, and not a currency per se. They represent a claim to currency held by IMF member countries for which they may be exchanged. SDRs were created in 1969 to supplement a shortfall of preferred foreign exchange reserve assets, namely gold and U.S. dollars. The ISO 4217 currency code for special drawing rights is XDR and the numeric code is 960.

SDRs are allocated by the IMF to countries, and cannot be held or used by private parties. The number of SDRs in existence was around XDR 21.4 billion in August 2009. During the global financial crisis of 2009, an additional XDR 182.6 billion was allocated to "provide liquidity to the global economic system and supplement member countries’ official reserves". By October 2014, the number of SDRs in existence was XDR 204 billion. Due to economic stress caused by the global pandemic (2020-2021) some economists and several finance ministers of poorer countries have called for a new allocation of $4T to support member economies as they seek ways to recover. In March 2021 the G24 and others proposed an allocation of $500B for this purpose.

The value of a SDR is based on a basket of key international currencies reviewed by IMF every five years. The weights assigned to each currency in the XDR basket are adjusted to take into account their current prominence in terms of international trade and national foreign exchange reserves. In the review conducted in November 2015, the IMF decided to add the Renminbi (Chinese yuan) to the basket, effective 1 October 2016. Since that date, the XDR basket has consisted of the following five currencies: U.S. dollar 41.73%, euro 30.93%, renminbi (Chinese yuan) 10.92%, Japanese yen 8.33%, British pound 8.09%

The SDR was created as a supplementary international reserve asset in the context of the Bretton Woods fixed exchange rate system. The collapse of Bretton Woods system in 1973 and the shift of major currencies to floating exchange rate regimes lessened the reliance on the SDR as a global reserve asset. Nonetheless, SDR allocations can play a role in providing liquidity and supplementing member countries’ official reserves, as was the case amid the global financial crisis.

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.