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Why SDRs Could Rival the Dollar

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  • John Williamson

    () (Peterson Institute for International Economics)

Abstract

The special drawing rights (SDRs)--the International Monetary Fund's unit of account--could emerge as a rival to the US dollar as an international reserve currency. Williamson questions the assertion of Cato Institute's Swaminathan Aiyar that the SDR is not a currency and can never be one and the relevance of the fact that the IMF has no GDP and no taxing capacity and so lacks the fundamental requirements for creating a currency. It is true that only central banks accept SDRs in settlement of debts. But to the extent that they are so accepted, Williamson argues, they are money and could play a far more central role in the international monetary system than they have so far. Large SDR allocations could be a mechanism to ensure consistency in balance of payments objectives sought by countries around the world, one that ensures a much fairer distribution of gains from seigniorage--profit that accrues to whoever issues money. In the case of the SDRs, the IMF would be the issuer, and the seigniorage gains would be distributed in proportion to IMF quotas, which determine the proportion of allocations. For most countries, there is a clear advantage in boosting the role of the SDR and achieving a portion of the seigniorage gains. The interests of major reserve-currency countries, like the United States and potentially China, in displacing the dollar's reserve role can be disputed, but these countries too would benefit from an enhanced role of the SDR, depending on the evaluation of advantages and disadvantages.

Suggested Citation

  • John Williamson, 2009. "Why SDRs Could Rival the Dollar," Policy Briefs PB09-20, Peterson Institute for International Economics.
  • Handle: RePEc:iie:pbrief:pb09-20
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    References listed on IDEAS

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    1. Burtraw, Dallas & Sweeney, Richard & Walls, Margaret, 2009. "The Incidence of U.S. Climate Policy: Alternative Uses of Revenues From a Cap-and-Trade Auction," National Tax Journal, National Tax Association, vol. 62(3), pages 497-518, September.
    2. Burtraw, Dallas & Sweeney, Richard & Walls, Margaret, 2008. "The Incidence of U.S. Climate Policy: Where You Stand Depends on Where You Sit," Discussion Papers dp-08-28, Resources For the Future.
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    Cited by:

    1. Michel LELART, 2009. "Les droits de tirage spéciaux (DTS) ressuscités par le G20 !," LEO Working Papers / DR LEO 1096, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    2. Yasir Khan & Attiya Yasmin Javid, 2015. "The Impact of Formal and Informal Institutions on Economic Performance: A Cross-Country Analysis," PIDE-Working Papers 2015:130, Pakistan Institute of Development Economics.
    3. Pedro Bação & António Portugal Durate & Mariana Simões, 2013. "The International Monetary System in Flux: Overview and Prospects," GEMF Working Papers 2013-07, GEMF, Faculty of Economics, University of Coimbra.
    4. Vivekanand Jayakumar & Barbara Weiss, 2011. "Global reserve currency system: Why will the dollar standard give way to a tripolar currency order?," Frontiers of Economics in China, Springer;Higher Education Press, vol. 6(1), pages 92-130, March.

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