UPSC General Studies Solved Paper - General Studies-2016

  • question_answer
    Recently, which one of the following currencies has been proposed to be added to the basket of IMF's SDR?

    A)  Rouble                         

    B)  Rand   

    C)  Indian Rupee    

    D)  Renminbi

    Correct Answer: D

    Solution :

    Exp. [d] The SDR was created by the IMF in 1969 as a supplementary international reserve asset, in the context of the Bretton Woods fixed exchange rate system. A country participating in this system needed official reserves? government or Central Bank holdings of gold and widely accepted foreign currencies?that could be used to purchase its domestic currency in foreign exchange markets, as required to maintain its exchange rate. But the international supply of two Key reserve assets?gold and the US dollar?proved inadequate for supporting the expansion of world trade and financial flows that was taking place. Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF. The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold which, at the time, was also equivalent to one US dollar. After the collapse of the Bretton Woods system in 1973, the SDR was redefined as a basket of currencies. Currently, the SDR basket consists of the US dollar, euro, Japanese yen, and pound sterling. Effective from 1st October, 2016, the basket will be expanded to include the Chinese renminbi.

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