Typography

The FT makes a hullabaloo out of Greece using special drawing rights (SDR) to pay the IMF earlier this week, referring to the step as "unusual." Zero Hedge predictably  grabs the baton and runs as far as it can go with the story. It's a good opportunity to revisit the SDR, a topic I last wrote about back in 2013. The FT claims that the payment of SDRs to the IMF is "the equivalent of taking out a low-interest loan from the fund to pay off another." Here the FT has committed cardinal error #1 when it comes to understanding how SDRs work—SDRs are not lent out by the IMF. I like to think of the SDR mechanism as comprised of 188 lines of credit issued to each of the IMF's 188 members. These lines of credit are denominated in SDR and apportioned according to each countries' relative economic size. Any line of credit needs a creditor. In the case of SDRs, who fills this role? Why, the 188 members of the IMF do. The SDR system is a mutual credit system, or...

IMF board room I like to think of the International Monetary Fund's special drawing rights (SDR) program as the world's largest Local Exchange Trading System , or LETS. A truly unique part of the monetary landscape, what follows is a short visual essay on SDRs. What is an SDR? An SDR has two aspects. First, an SDR is a unit of account, or, put differently, a measure of value. As a unit-of-account, the SDR is defined by the IMF in terms of a reference good, or a medium of account. When the SDR was first introduced in 1969, an SDR was defined as 0.888671 an ounce of gold, so the yellow metal was the SDR's first medium of account. The IMF later redefined the SDR as a certain quantity of central bank currencies. As of 2012, an SDR is comprised of a basket of 0.423 euros, 12.1 yen, 0.111 pounds, and 0.66 US dollars. Thus the modern day SDR is defined in terms of multiple media of account. The Suez Canal Authorities currently uses the SDR to calculate the Suez Canal Tariff, whi...

Gavyn Davies drew some interesting parallels between the ECB and the IMF last week. This follows on his post the " ultimate taboo ", in which he analyzed the idea of "convertibility risk", a term first used by ECB head Mario Draghi in a speech in late July. Gavyn points out that in explicitly drawing attention to its job of controlling convertibility risk - ie. ensuring that all euros are the same - the modern ECB is becoming more like the IMF. Specifically, during Bretton Woods the IMF sometimes financed the balance of payments deficits of member nations in order to ensure the system of fixed exchange rates stayed, well, fixed. When it did so, the IMF was engaging in a mind game of sorts with the market, for the market knew that the IMF knew that the market knew that rates could be modified if attacked with enough force. In admitting to the world the existence of convertibility risk, the ECB is now displaying an IMF-degree of hyper self-awareness... for the first ...

A few thoughts on the IMF and SDRs over at the Money View . The IMF and the SDR program are difficult to de-consolidate: As far as I know, the IMF doesn't run the SDR program on its own balance sheet, it just administers the SDR program. Using your example, the EU and the US issue promises to currency which are held in some mutual account managed by the IMF, and that account in turn issues SDRs back to the EU and US. So in effect, the IMF doesn't swap its own promises with the EU and the US. Rather, the US and EU are swapping promises with each other with the IMF as facilitator. That being said, The last time I checked, the IMF was the largest owner of SDRs, all held on its own account.  Here is the current distribution of SDRs across nations and institutions.