An AHP-Based Approach to Predict the Impact of Expanding SDR Use on the Currency Composition of the International Reserve System

How would an expansion in the use of special drawing rights (SDR) affect the currency composition of the international reserve system? This study explores this question by proposing a novel analytical framework based on the analytic hierarchy process (AHP) model. We incorporate the use of SDR as a reserve asset and a denomination into an AHP model to determine the currency structure in global foreign exchange (FX) reserves. We then design scenario simulations to analyze changes in the currency structure of global FX reserves with expansion in the use of SDR. We show that greater SDR use can lead to convergence in the share of each SDR currency in international reserves based on their weight in the SDR. At present, the share of the USD in international reserves exceeds its weight in the SDR, and the share of other SDR currencies, such as the EUR and RMB, is below their respective weights. Hence, expanding SDR use would weaken the reserve position of the USD and strengthen that of the EUR and RMB, making the international reserve system more balanced.