What are Special Drawing Rights (SDR's)?

According to the International Monetary Fund (IMF):

The [Special Drawing Right, or] SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies.

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The amorphous nature of SDR's defies modern definition and description as SDR's are an exhange instrument available for use by sovereign states rather than corporations or individuals. The IMF has published an informative paper entitled, Enhancing International Monetary Stability -- a Role for the SDR? (Moghadam, 2011), which describes how SDR's are used to enable international trade.

Watch for SDR's to play an increasingly important role in world trade settlements. Eventually, SDR's could replace sovereign currencies as the foreign exhange medium of choice globally.

Source: International Monetary Fund (IMF)