UPSC Prelims 2010 Q45: Indian Economy – International Institutions & Reports
Which of the following is/are treated as artificial currency?
- (a) ADR
- (b) GDR
- (c) SDR
- (d) Both ADR and SDR
Answer: (c) SDR
Explanation
Identifying the "artificial currency"
Among various international financial instruments, one is specifically designed as a non-national reserve asset.
| Option | Verdict | Reason |
|---|---|---|
| (a) ADR (American Depository Receipt) | Incorrect | ADRs represent shares of a foreign company traded on US exchanges — not a currency at all |
| (b) GDR (Global Depository Receipt) | Incorrect | Similarly, GDRs represent company shares traded internationally, not a currency |
| (c) SDR (Special Drawing Right) | Correct | The IMF's SDR is an artificial international reserve asset, its value based on a basket of currencies — commonly described as an 'artificial currency' since it is not issued by any single nation |
| (d) Both ADR and SDR | Incorrect | Since ADR is not a currency at all, pairing it with SDR is incorrect |
SDR basics:
| Point | Detail |
|---|---|
| Issuer | International Monetary Fund (IMF) |
| Nature | Artificial reserve asset, basket-of-currencies valuation |
| Not a currency of any nation | Hence called an 'artificial currency' |
Answer: (c) SDR.
Why each option is right or wrong
- (a) Incorrect. ADR represents company shares, not any form of currency.
- (b) Incorrect. GDR similarly represents company shares internationally, not a currency.
- (c) CORRECT. SDR, the IMF's basket-based reserve asset, is the recognized 'artificial currency'.
- (d) Incorrect. Since ADR is not a currency, combining it with SDR is wrong.
Key point
The SDR (Special Drawing Right), issued by the IMF as a basket-of-currencies reserve asset, is the 'artificial currency' — ADR and GDR are depository receipts for company shares, not currencies at all.
Remember
SDR (Special Drawing Right): the IMF's artificial currency/reserve asset, distinct from ADR/GDR share-based instruments.
Common mistakes
- Confusing depository receipts (ADR/GDR), which represent equity shares, with a currency-like reserve asset.
- Not knowing the IMF's SDR as the specific 'artificial currency' concept.
- Mixing up equity-market instruments with monetary/reserve-asset instruments.
Exam tip
SDR = IMF's artificial currency (basket of currencies). ADR/GDR = depository receipts for company shares, NOT currencies.
Sources
- International Monetary Fund — Special Drawing Rights (SDRs): factsheet
- Ministry of Finance, Government of India — Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993