SDR cannot compete with key reserve currencies, says Sama

Special drawing rights (SDR) will not compete with key reserve currencies for the foreseeable future because they are not used to denominate widely traded assets, the central bank governor of major oil producer Saudi Arabia said.

Muhammad Al Jasser, the Governor of the Saudi Arabian Monetary Agency (Sama), said in an interview that Saudi Arabia has managed assets as reserves and not as sovereign wealth funds, or state-owned investment vehicles, and are focusing on safety, liquidity and risk-adjusted returns.

SDRs, the International Monetary Fund's internal unit of account, have gained prominence recently after China proposed that they could be used as an alternative to the dollar as the world's reserve currency.

"The SDR is purely an International Monetary Fund reserve currency. By no means is it an internationally traded reserve currency in the sense of having a lot of diversified assets denominated in that currency," Jasser said in the Swiss city of Basel.

"Hence it cannot compete with major currencies of the world in the global financial markets such as the dollar, euro, yen, sterling or Swiss franc. Therefore, I do not anticipate that SDRs could in the foreseeable future replace any of these reserve currencies," he said on the sidelines of a meeting of central bank governors at the Bank for International Settlements.

Russia has also suggested that a new global currency could be based on the SDR, whose basket is composed of 44 per cent in the dollar, 34 per cent in the euro, 11 per cent in sterling and the yen respectively. The IMF will next review the weighting of the SDR in late 2010.

Asked about the impact of the credit crisis on the way the country invests its reserves, Jasser said Saudi Arabia has prioritised safety, liquidity and risk-adjusted returns in managing reserves.

"As you well know, we do not invest our assets as sovereign wealth funds do. We invest them as reserves. Managing reserves is totally different from managing sovereign wealth funds," he said.

"In our case we manage our reserves in such a way as to insure safety, liquidity, and risk adjusted returns. Such an approach to investment has spared us a lot of pains and losses that were incurred by other sovereign wealth funds." Sovereign wealth funds have suffered huge losses during the crisis by investing into Western banks.

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