Question

According to M L Jhingan "International Economics"
What is the merit of SDR in production when compared to gold?

Please don't use any other source

Answer 1

Special Drawing Rights (SDRs), also known as the paper gold, are a form of international reserves created by the IMF in 1969 to solve the problem of international liquidity. They are not paper notes or currency. They are international units of account in which the official accounts of the IMF are kept.

Merits of SDRs:

1. SDRs are a new form of international monetary reserves which have been created to free the international monetary system from its exclusive dependence on the US dollar.

2. They have rid the world of its dependence on the supply of gold and fluctuations in gold prices.

3. They cannot be demonetized like gold or become scarce when the demand for dollar increases in the world.

4. Unlike gold, SDRs are costless to produce because production of gold requires resources to mine, refine, transport and guard it.

5. SDRs have been created to improve international liquidity so as to correct fundamental disequilibria in balance of payments of Fund members. Under this scheme, the participants receive SDRs under transactions with designation and transaction by agreement unconditionally.

6. Fund members are not required to change their domestic economic policies as they are expected under the Fund aid programmes.

7. The payment and repayment of SDRs out of the Special Drawing Account is easier and more flexible than under the Fund schemes.

8. Last but not the least, SDRs act both as a unit of account and a means of payment of international monetary system.