SDR is an IMF’s internal accounting unit for member countries and a weighted average of a basket of currencies including US dollar, Japanese yen, pound sterling, Euro and Chinese Remimbi. The fresh allocation of SDR follows the recent resolution by G-20 to increase IMF’s lending capacity by $650 billion to fight the economic fallout of the COVID-Crisis. India gets the allocation in proportion to its quota with the IMF which is 2.75 percent.
India’s total SDR holdings now stands at SDR 13.66 billion (equivalent to around USD 19.41 billion at the latest exchange rate) as on August 23, 2021. This increase in SDR holdings will be reflected in the Foreign Exchange Reserves (FER) data that shall be published for the week ended August 27, 2021, according to a release by the Reserve Bank. India’s reserves are $616.9 billion as of August 20.
The increased allocation of SDR may lower the cost of holding reserves for the central bank. An SDR allocation is a way of supplementing Fund member countries’ foreign exchange reserves, allowing members to reduce their reliance on more expensive domestic or external debt for building reserves, according to the IMF.
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