Columbia International Affairs Online: Policy Briefs

CIAO DATE: 12/2009

Why SDRs Could Rival the Dollar

John Williamson

September 2009

Peterson Institute for International Economics

Abstract

In a recent Cato Institute paper, Swaminathan S. Anklesaria Aiyar (2009) asserts that the International Monetary Fund’s special drawing rights (SDRs) cannot rival the US dollar, as suggested by the Chinese central bank governor (Zhou Xiaochuan 2009). “The SDR is not a currency and never can be,” Swami declares confidently in the first paragraph of his paper. He presents two arguments, which are presumably supposed to be proofs of this proposition. In the next paragraph, he tells us: "…its value is defined as the value of a weighted basket of four currencies…. Its value fluctuates with the value of its constituent currencies. This should make it clear that the SDR is not a currency in its own right. Rather, it is a derivative of four national currencies. A derivative is not a currency."