On 2 August 2021, the International Monetary Fund (IMF) approved an extremely large general allocation of special drawing rights (SDRs) equivalent to US$650 billion (around SDR 456 billion), which will become effective on 23 August 2021. SDRs are an international reserve asset. The IMF can create SDRs when it identifies a global shortage of reserve assets, and allocates these to its members proportionally based on their IMF quotas, which reflect their relative positions in the world economy. SDRs were last allocated in 2009. The new allocation triples the total stock of SDRs to a new level of roughly SDR 660 billion.

Germany is set to receive around €30 billion worth of additional SDRs. The SDR holdings form part of the Federal Republic of Germany’s reserve assets, which are managed by the Deutsche Bundesbank in line with the legal provisions and required characteristics of reserve assets. The legal bases for this are Article 3 of the German IMF Act of 1978, Section 3 of the Bundesbank Act (Gesetz über die Deutsche Bundesbank) in line with the provisions set out in Article 127(2) third indent of the Treaty on the Functioning of the European Union (TFEU), and Article 123 of the TFEU.

Special drawing rights can be exchanged for a reserve currency, but are not themselves a currency as they cannot be used as a means of payment outside the IMF’s SDR system. A number of financially strong IMF members, including Germany and thus the Deutsche Bundesbank, have expressed their willingness to the IMF to exchange SDRs on a voluntary basis. In most cases, SDRs are exchanged for a member’s own currency, which for Germany is the euro.

SDR allocations create both a credit balance and a matching liability for the recipient countries, since they can also be cancelled by the IMF. They therefore increase gross reserve assets, while net reserve assets remain unchanged. Thus, at the Bundesbank, allocations of special drawing rights are reported on the balance sheet in full, with the effect of extending the balance sheet. SDR holdings are reported as reserve assets on the assets side of the balance sheet, under item 2.1 “Receivables from the IMF”. At the same time, SDR allocations have to be recorded in full on the liabilities side (item 8 “Counterpart of special drawing rights allocated by the IMF”; see also Deutsche Bundesbank, Annual Report 2020, “Notes on the individual balance sheet items”, pp. 54 ff.).

Allocations of special drawing rights are comparable to the granting of an overdraft facility; they thus give countries in crisis situations an opportunity to obtain reserve currencies when their own reserves are running low, as in the current global pandemic. SDRs can be used for transactions between IMF members and with the IMF itself. Unlike with IMF lending programmes, no conditions or repayment deadlines are imposed on a country when using its own SDRs. When a country’s SDR holdings drop below its cumulative SDR allocations, it has to pay interest on the difference to the IMF (SDR interest rate, or SDRi). If its SDR holdings are greater than its cumulative allocations, the country receives interest income (SDRi) on the difference from the IMF.

Since IMF members account for SDRs in their domestic currencies, changes in the value of SDRs against those currencies play no role as long as holdings and allocations of SDRs match up. If, however, SDR holdings and allocations differ, which is often the case as a result of SDR transactions, the difference represents exchange rate risk.

The value of the SDR is based on a basket of five currencies (US dollar, euro, yen, pound sterling, renminbi). It is determined by the IMF and published on its website.