Q. “Gold Tranche” (Reserve Tranche) refers to
a) a loan system of the World Bank
b) one of the operations of a Central Bank
c) a credit system granted by WTO to its members
d) a credit system granted by IMF to its members
Correct Answer : d) a credit system granted by IMF to its members
Question from UPSC Prelims 2020 GS Paper
Explanation:
Gold Tranche (Reserve Tranche)
The “Gold Tranche” (Reserve Tranche) refers to a portion of a country’s quota in the International Monetary Fund (IMF) that can be accessed without the stringent conditions that typically apply to IMF loans. The term originates from the time when the IMF’s operations were closely tied to gold, but in the modern context, it represents a reserve asset that member countries can access.
Quota and Reserve Tranche Position
Each member of the IMF is required to pay a quota, part of which is payable in Special Drawing Rights (SDRs) or major currencies, and part in the member’s own currency. The portion that is payable in SDRs or major currencies forms the country’s reserve tranche position. Accessing funds from the reserve tranche is considered a right of the member countries, as it essentially represents their own resources that they have on deposit with the IMF. Therefore, drawing on the reserve tranche is not considered a loan and does not carry the same conditions and interest charges that other IMF financial mechanisms do.
Liquidity and Financial Safety Net
This system is designed to provide member countries with liquidity in times of balance of payments needs, without the need for a full-fledged program or the stigma that might be associated with borrowing from the IMF. It’s an important part of the global financial safety net, providing a first line of defense for countries with temporary liquidity problems.
