Special Drawing Rights

The International Monetary Fund created the SDR in the late 1960s to supplement the gold and other currencies held by countries as their reserves. The value of 1 SDR was initially defined as the same amount of gold as 1 USD. At the time, the USD was convertible into gold, so most countries chose to hold the bulk of their reserves in dollars instead of gold.

In 1969, tight US monetary policy lead to fears that there wouldn't be enough US dollars available for reserve holdings. These concerns lead to the first issuance of SDRs in 1970. As the USD ceased to be convertible into gold in 1971, the SDR's value was changed from a specific amount to gold to a weighted basket of major reserve currencies, which today includes the USD, EUR, JPY and GBP.

As you can see on the chart, the SDR and USD were very close in value in 1985, but the SDR has held up a bit better than the USD in the years since then. In 2014Q3, the USD is worth about 25% of its 1985 value, while the SDR retains about 40% of its 1985 value.

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There has been talk recently of making the SDR a more important part of the world's monetary system, possibly even replacing the USD as the world's reserve currency. I don't know how this will play out, but I will be tracking the SDR on it's own page going forward. You can read more about the SDR in this report from 2009, and see the details of its current makeup and value on the IMF's SDR page.