MIL-OSI Translation: The IMF Executive Board completes the five-year review of the SDR valuation method and determines the new weightings of the currencies making up the basket used to calculate the value of the SDR

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MIL OSI Translation. Government of the Republic of France statements from French to English –

Source: IMF in French

May 18, 2022

The current composition of the basket of currencies and interest rate instruments used to calculate the value and the interest rate of the SDR was maintained and the updated weightings were approved. This updated basket provides slightly higher weightings for the US dollar and the Chinese renminbi and, consequently, slightly lower weightings for the British pound, the euro and the Japanese yen. The new basket weights will come into effect on August 1, 2022.

Washington, DC: On May 11, 2022, the Executive Board of the International Monetary Fund (IMF) completed the five-year review of the methodology for valuing the basket of currencies used to calculate the value of the Special Drawing Right (SDR) . [1] The review focused on the composition and weighting of the SDR currency basket. The Board of Directors also reviewed the corresponding interest rate instruments used to determine the SDR interest rate. The new basket weights will come into effect on August 1, 2022.

The last review of the SDR valuation method dates from 2015. According to the current valuation method adopted by the Board of Directors, the SDR currency basket is reviewed every five years, unless new circumstances arise. justify changing the date of this review. The current review is being conducted about a year later than planned. Indeed, the Executive Board had decided in March 2021 to extend the validity of the current basket until July 31, 2022 so that the IMF could focus on its response to the COVID-19 pandemic, in particular on its related work. to the general SDR allocation made in 2021.

Evaluation by the board of directors

Directors completed the five-year review of the Special Drawing Right (SDR) valuation methodology. They declared themselves in favor of maintaining the current method of valuing the SDR, in particular the selection criteria for establishing the composition of the basket and the methods for determining the weightings and amounts of the currencies in the basket, while endorsing the current practice and the generally accepted statistical method for filling data gaps. The directors decided to maintain the current composition of the basket of currencies and interest rate instruments used to calculate the value of the SDR and approved the new weightings.

They agree that the export test and the freely usable currency test should continue to guide decisions on the inclusion of currencies in the basket. They also agree to maintain the methodology introduced in the 2015 review for determining the weights and amounts of currencies in the SDR basket. Directors would like future reviews to include a more in-depth analysis of the weights used in the formula so that it continues to adequately reflect the role of currencies in global trade and financial markets. They agree that the lack of data relating to the indicators used in the review of the SDR assessment methodology should be addressed by using data available over the relevant five-year period, in accordance with what was done previously, while continuing to study the relevance of other available variables to limit these gaps.

Directors noted that based on developments in trade and financial markets over the period 2017-2021, the updated SDR basket weights retain the same ranking as the original weights established in the 2015 review, but with slightly higher weightings for the US dollar and the Chinese renminbi and, consequently, somewhat lower weightings for the British pound, the euro and the Japanese yen. They agree that neither the COVID‑19 pandemic nor advances in fintech have so far had a major impact on the relative role of currencies in the basket. They call for continuous monitoring of the implications that developments in fintech and other factors, such as possible economic and financial fragmentation and rising inflation, may have for the SDR assessment framework. A small number of directors also recommend monitoring the impact of economic sanctions on the assessment framework.

Administrators note with interest the information collected during a survey of DTS users on operational issues that had been raised in previous reviews, and are pleased that it found that most users do not experience operational difficulties. by using SDRs or by operating in the markets of the five currencies in the basket. They note, however, that the investigation has confirmed that certain operational problems remain with regard to the currencies making up the basket. In this regard, Directors generally acknowledged the progress made in China’s financial market reforms, while calling for further steps to further open and deepen the territorial renminbi market, with a few Directors also emphasizing the need for further enhance data transparency.

Directors approved the Director General’s proposal that the next DTS review should follow the five-year schedule and be completed by the end of July 2027.

Annex. Summary of key decisions

Composition and size of the SDR basket

The value of the SDR will continue to be determined against a weighted average of the values of a basket of currencies comprising the US dollar, euro, Chinese renminbi, Japanese yen and British pound.

Currency weights in the SDR basket (and SDR interest rate)

The IMF has determined that the five currencies that meet the selection criteria for inclusion in the SDR basket will be assigned the following weights based on their role in global trade and financial markets, effective August 1, 2022:

US Dollar 43.38% Euro 29.31% Chinese Renminbi 12.28% Japanese Yen 7.59% Pound Sterling 7.44%

The amounts of each of these five currencies will be calculated on July 29, 2022 (date of transition) according to the new weightings and will come into effect on August 1, 2022 [2] . The calculation will be made on the basis of the average exchange rates of these currencies during the three months preceding the transition date, so that the value of the SDR will be the same on this date according to the current valuation basket and according to the revised basket.

In order to help users of SDRs and to inform them sufficiently in advance, the IMF will share projections of the amounts of currencies according to the revised basket, once in May and June, and each week in July, on its website ( www.imf.org). Since the currency amounts will be based on a three-month average exchange rate, these projections will tend to gradually approach the final amounts. Users will therefore be aware of the probable amounts of the new basket which will come into effect on August 1, 2022.

SDR interest rate

The SDR interest rate will continue to be calculated as the weighted average of the interest rates of short-term financial instruments on the currency markets making up the SDR basket.

[1] The SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries.

[2] A press release with the final currency amounts of the new SDR basket, which will take effect on August 1, 2022, will be issued by the IMF on July 29, 2022. The first SDR exchange rate using the new basket will be released on August 1, 2022. The first SDR interest rate based on the new basket will be determined on August 5, 2022 and will be valid the week of August 8-12, 2022. More information on the SDR is available on the IMF website ( https://www.imf.org/en/data/imf-finances ).

IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Wafa Amr

PHONE: 1 202 623-7100 EMAIL: MEDIA@IMF.org

EDITOR’S NOTE: This article is a translation. Apologies should the grammar and/or sentence structure not be perfect.

MIL Translation OSI