Special Drawing Rights are reserve assets entered in the books of the International Monetary Fund (IMF) as credits for member nations. A member may use this special account to obtain needed foreign currency from another member. Special Drawing Rights are often called “SDR’s” or “paper gold.” They are not real money and have no gold backing, but they have a full guarantee of gold value. Member nations may transfer SDR’s among themselves to settle debts.
The IMF first created Special Drawing Rights in 1969 to supplement international reserves of gold and national currencies, especially the United States dollar. SDR’s represented a more reliable and internationally better controlled medium of exchange. Gold supplies could no longer meet the demand for reserve backing.
In addition, the dollar had two drawbacks. Some Europeans thought its use as an international currency gave the United States too much power in international finance. Some Americans thought a dollar-based exchange placed too much international responsibility on U.S. domestic economic policy.
