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An international reserve asset created by the IMF, representing a potential claim on freely usable member currencies.
An SDR's value is calculated from a basket of major currencies. A general allocation gives participating IMF members SDRs according to their quota shares. Holdings can subsequently change through exchanges and other authorised transactions. Interest is earned on holdings and charged on allocations; using holdings below the amount allocated can therefore create a net interest cost.
Suppose a country has been allocated SDR 100 million and still holds that amount. It exchanges SDR 20 million for US dollars, leaving holdings of SDR 80 million while its allocation remains SDR 100 million. Ignoring other transactions, interest charged on the allocation now exceeds interest earned on holdings. The dollars obtained are usable foreign currency; the allocation did not disappear.
Jamaica’s reserves rise as borrowed foreign funds enter the balance