According to IMF (2016), the Special Drawing Rights (SDR) is an international reserve asset created in 1969 by the IMF. Its aim was to supplement member nation’s official reserves. In the beginning, the SDR operated in the context of the Bretton Woods fixed exchange rate system. In this regards, countries that participated in the system needed to hold their national reserve either by the central bank or government in the form of gold or any other broadly acceptable foreign currency. The currency or gold was used to purchase the country's domestic currency in the foreign exchange market to help the nation maintain the exchange rate at a considerably advantageous level.
It should be also noted that the member states use the SDR to balance settlements. A member country can access the currencies through a voluntary arrangement between members. The IMF can also request countries with a strong external position to buy the SDR from member nations with weak external positions. It is essential to note that the Bretton Woods system failed in 1973 leading to a redefinition of the SDR to include a basket of currencies including the Euro, US Dollar, Japanese Yen, and the Sterling Pound.
The SDR can replace the US dollar because it contains other acceptable currencies that have relatively high weight in comparison to the US dollar. In this regards, the SDR would cushion member nations from the fluctuation of the US Dollar because they can use other currencies in the basket. The fact that the IMF does not lean towards one country to make decisions, in particular on the interest rates chargeable on the SDR, makes it a good universal 'currency' for the members.
However, in the current definition, the SDR is not a currency and not a claim of the IMF. In this case, it becomes impossible to treat it as a currency. Besides, there would be a problem of building trust on the use SDR to the level that the world has on the US Dollar.
The IMF intervenes when a country faces serious economic issues in regards to the balance of payment internationally, monetary crisis, and matters of international financial cooperation. Nigeria significantly relies on the exportation of oil to gain foreign revenues and grow the GDP. However, with the fall of the oil prices globally the country plunged into a currency crisis. It has also been experiencing severe security issues like Boko Haram that affected the production of oil and other economic growth adversely.
The IMF would request Nigeria to exercise fiscal discipline, cut on expenditure, and offer the country conditional loans and grants. The move would help the country’s economy to stabilize in the long run. Cutting spending would allow the nation to increase its reserves while the loans and grant may help it to diversify economic activities.
Based on the experience in Greece and other regions, Nigeria should not approach the IMF for help. Blanchard (2015) noted that IMF interventions of 2010 in Greece increased the debt by 12% annually something that made the situation worse. Further, Blanchard claims that if there were no interventions, Greece would not have borrowed but adopted internal fiscal controls that would have been sustainable. Besides, IMF tends to meddle with the internal affairs of the nations it seeks to help. In the process, it can destroy the policy formulation that suits the particular country in the attempt to impose interventions that seemed to work in other regions.
I believe that IMF should not interfere with the nation’s internal affairs and should only help following the states' domestic policies without forcing them to adopt unpopular changes.
References
Blanchard, O. (2015). Greece: Past Critiques and the Path Forward. Retrieved May 05, 2016, from https://blog-imfdirect.imf.org/2015/07/09/greece-past-critiques-and-the-path- forward/
IMF. (2016, April 6). Factsheet -- Special Drawing Rights (SDRs). Retrieved May 05, 2016, from http://www.imf.org/external/np/exr/facts/sdr.htm
