Tuesday, March 24, 2009

SDRs = Unit of Account for Suez Canal

Wall Street Journal -- China's central bank governor, Zhou Xiaochuan, proposed expanding the role of "Special Drawing Rights," or SDRs. They were created in 1969 by the International Monetary Fund to use as a reserve currency as the dollar tottered.

SDRs are a kind of synthetic currency whose value is determined by a basket of major currencies ($, Yen, Euro and Pound). In the early 1970s, some banks took deposits denominated in SDRs and some companies even issued bonds in the currency. But the market always remained small, and the main use of SDRs today is to account for transactions between the IMF and its member nations.

The SDR is "basically the Esperanto, at best, of international currencies," says Jeffrey Frankel, an economist at Harvard University, referring to the ill-fated attempt to create a common language. "It's not at all used."

MP: There's actually at least one exception. Passage through the Suez Canal is quoted in SDRs, see current transit rates here. I assume that payment is accepted in dollars (approx. $1.50/SDR), euros (1.135 per SDR), or pounds (1.04 per SDR) based on current ex-rates, but the transit rates are quoted in SDRs.

Update: SDRs are also the basis for the international fees of the Universal Postal Union, responsible for the world-wide postal system. Thanks to ExtremeHobo for the tip.


At 3/24/2009 9:44 AM, Blogger ExtremeHobo said...

These are also used by the Universal Postal Union to come up with their stamp prices.

At 3/24/2009 10:46 AM, Blogger misterjosh said...

I must be misunderstanding something on the web site, because at stated exchange rates, it would cost $20.04 to transport a 20,000 ton oil tanker.

That seems kinda low.

At 3/24/2009 11:58 AM, Blogger Mark J. Perry said...

Misterjosh: The rate might be per ton? I read somewhere that the average cost for passage through the Suez Canal is $150,000.

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At 3/28/2009 3:53 PM, Blogger Autor said...

SDRs is also used to limit carrier liability on international flights (see Montreal Convention, Warsaw Convention), as well as ship owner liability for cargo damages and oil pollution


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