Question
Q27. “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 members
d. a credit system granted by IMF to its members
Answer: D
Detailed Explanation
• The IMF is funded through its members and their quota contributions. The reserve tranche is basically an emergency account that IMF members can access at any time without agreeing to conditions or paying a service fee.
• In other words, a portion of a member country’s quota can be withdrawn free of charge at its own discretion.
• The reserve tranches that countries hold with the IMF are considered their facilities of first resort, meaning they
will tap into the reserve tranche before seeking a formal credit tranche.
• Initially, member nations’ reserve tranches are normally 25% of their quota. However, their RTP can change according to any lending that the IMF does with its holdings of the member’s currency.
• Prior to 1978, the reserve tranche was paid in gold, which was non-interest bearing and known as the gold tranche.
• It’s like an ATM withdrawal from your own account at IMF—you can access it anytime, no questions asked.
• How it works:
1. Every IMF member contributes a quota (membership fee), partly in:
2. Own currency
3. Freely usable foreign currency (like USD)
4. Gold (historically)
5. The foreign currency + gold portion is the Reserve Tranche.
6. A country can withdraw this part any time without any conditionality (i.e., no IMF approval needed).
