The SDR is a reserve asset and unit of account created by the IMF, also known as “paper gold”.
Special Drawing Rights are the right to use funds allocated by the IMF to member countries.
If there is a balance of payments deficit, member countries can convert from other member countries designated by the IMF to repay the balance of payments deficit or repay IMF loans.
It also serves as an international reserve, like gold and freely convertible currencies.
However, because it is only a unit of account and not a real currency, it must be converted to other currencies before it can be used and cannot be used directly for trade or non-trade payments.
Because it is a supplement to the IMF’s original ordinary drawing rights, it is called Special Drawing Rights (SDR).
