Question

14. How can a country be considered a creditor nation? What problems can such a distinction case?

12. what are Special Drawing Rights (SDRs)?

Answer 1

14. A creditor nation is a country which a surplus balance of payment(BOP). It means country net external assets which a country have invested in abroad is more than the investment made in the that country by the rest of the world.

A creditor nation has a positive net investment after recording all the financials transactions between the country and the rest of world. So we can say if a country have surplus BOP it is a creditor nation. Presently Germany and Switzerland are creditor nation in the Eurozone.

USA was a creditor nation till 1985 but now it is not a creditor nation. International Monetary Fund releases the database of Net International Investment Position (NIIP) means a database of creditor nation. Which is used by the everyday investors.

The problem of distinction of creditor nation can cause is that on of the basis of BOP we cannot gauge the position of a country. USA have a negative BOP and Mexico and Brazil also has negative BOP but USA economy is more stronger than Brazil and Mexico.

12. Special Drawing rights :-

Special drawing rights (SDR) refer to an monetary reserve currency created by International Monetary Fund in 1969 that operates as a supplement to existing money reserves and overcome the limitation of Gold and Dollars.

SDR helps in increasing the international liquidity. It is used for internal accounting purpose by IMF. SDR are allocated to member countries in the urgent liquidity crisis and it is backed by full credit and faith of member countries government.

The make up of SDR is re-evaluated every five years . SDR was initially 0.888671 grams of gold in 1969.