This paper describes how the changed conditions in the international monetary system have undermined the role originally envisaged for the SDR. It argues that the concept of a global stock of international liquidity, which was fundamental to the creation of the SDR, is now no longer relevant Nonetheless, there are good reasons to satisfy pan of the growing demand for international reserves with SDR allocations: (i) there are efficiency gains, as SDRs can be created at zero resource cost, and thus obviate the need for countries to run current account surpluses or engage in expensive borrowing to obtain reserves, and (ii) there would be a reduction in systemic risk, as SDRs would substitute to some extent for borrowed reserves, which are a less reliable and predictable source of reserves, especially in times of crisis. [JEL F33, F41]

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This article is ideal for economics students, finance professionals, researchers, policymakers, and anyone interested in understanding international finance and global economic trends. Whether you are studying macroeconomics or simply want to stay informed about current financial issues, this article provides valuable insights supported by economic research.

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Published by the International Monetary Fund (IMF) in its renowned Finance & Development journal, this article examines important issues affecting the global economy through accessible analysis and evidence-based research. Rather than focusing solely on academic theory, the article explains complex economic concepts in a way that is useful for students, professionals, and general readers alike.

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