Question map
"Gold Tranche" (Reserve Tranche) refers to
Explanation
The correct answer is Option 4. The Gold Tranche, now commonly referred to as the Reserve Tranche, is a crucial component of the International Monetary Fund (IMF) quota system.
The explanation for why Option 4 is correct involves the following points:
- Definition: It represents a portion of a member country's quota that can be accessed without any conditionality or service fees.
- Composition: Originally, members paid 25% of their quota in gold (hence "Gold Tranche") and 75% in their domestic currency. Today, this 25% is typically held in Special Drawing Rights (SDRs) or foreign exchange.
- Liquidity: This tranche is considered a part of a country's own international reserves and can be withdrawn at any time to meet balance of payments needs.
Options 1, 2, and 3 are incorrect because the World Bank focuses on developmental loans, Central Bank operations concern domestic monetary policy, and the WTO deals with trade regulations, not international liquidity systems.
PROVENANCE & STUDY PATTERN
Full viewThis is a textbook 'Term-Association' question. Standard Economy books (Vivek Singh/Singhania) explicitly define Reserve Tranche under the IMF chapter. If you read the static portion on Bretton Woods institutions, this is free marks.
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- Defines Reserve Tranche Position (RTP) as the portion of a member's quota that the country can designate for its own use.
- Specifies that this reserve tranche portion can be accessed anytime and is not under an immediate obligation to be repaid to the IMF.
- States that up to 25% of a member's quota can be paid in foreign currencies and labels this portion as the Reserve Tranche.
- Links the concept of Reserve Tranche directly to quota payment composition, clarifying its financial character.
- Lists Reserve Tranche Position (RTP) as a component of a country's foreign exchange reserves.
- Defines Reserve Tranche as a portion of the required quota that a member country can utilize for its own purposes.
- [THE VERDICT]: Sitter. Directly available in Vivek Singh (Ch 13) and Nitin Singhania (Ch 18). Fundamental static knowledge.
- [THE CONCEPTUAL TRIGGER]: International Economic Organizations > IMF > Financial Structure (Quotas & Lending).
- [THE HORIZONTAL EXPANSION]: IMF Quota Formula (GDP 50%, Openness 30%, Variability 15%, Reserves 5%); SDR Basket (USD, Euro, Yuan, Yen, Pound); Extended Fund Facility (EFF); Rapid Financing Instrument (RFI); World Bank's IDA (Soft Loan Window) vs IBRD.
- [THE STRATEGIC METACOGNITION]: Create a 'Glossary of Terms' for International Bodies. UPSC frequently asks 'Term X belongs to Institution Y'. Examples: 'Green Box' (WTO), 'Gold Tranche' (IMF), 'Global Economic Prospects' (World Bank).
Quota determines a member's subscription, voting power, SDR share, borrowing capacity and the reserve tranche portion.
High-yield for UPSC: quotas explain IMF governance, financing and member entitlements; connects to questions on global financial architecture, voting influence and balance-of-payments assistance. Mastering quota functions helps answer policy and institutional role questions.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 13: International Organizations > Quota is used to determine the following: > p. 398
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 13: International Organizations > International Monetary Fund (IMF) > p. 397
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 18: International Economic Institutions > Financial Resources of IMF > p. 518
The reserve tranche is the portion of a member's quota that can be drawn for domestic use and need not be repaid immediately.
Important for UPSC: explains a core IMF facility distinguishing automatic access to a member's own quota from conditional lending; useful for questions on crisis financing, foreign reserves composition and IMF conditionality debates.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 13: International Organizations > Quota is used to determine the following: > p. 398
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 16: Balance of Payments > FOREIGN EXCHANGE RESERVES > p. 483
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 18: International Economic Institutions > NO IMF Quota for Member Countries > p. 515
Up to 25% of a member's quota is paid in convertible foreign currencies (the reserve tranche), with the remainder in the member's own currency.
High relevance: clarifies how IMF resources are funded and why reserve tranche appears in a country's foreign exchange reserves; useful for currency reserve, BOP and IMF financing questions and for interpreting balance-sheet implications.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 18: International Economic Institutions > NO IMF Quota for Member Countries > p. 515
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 13: International Organizations > International Monetary Fund (IMF) > p. 397
The 'New Arrangements to Borrow' (NAB). While Quotas are the first line of defense, NAB is the second line of funding where member countries lend to the IMF. Also, watch out for 'IMF Surcharges'—extra fees charged on countries with high debt, which is a current contention point.
Etymology Hack: 'Tranche' means a slice/portion. 'Reserve' implies assets held for security. WTO deals with trade rules, not holding financial reserves. World Bank gives project loans. Only a Central Bank or the 'Central Bank of Central Banks' (IMF) deals with 'Reserve Tranches'. Between Central Bank and IMF, 'Gold Tranche' sounds like a global standard, pointing to IMF.
Mains GS3 (External Sector): The Reserve Tranche Position (RTP) is officially counted as part of India's Forex Reserves (along with FCA, Gold, and SDRs). Understanding this links to Balance of Payments stability and how India accesses liquidity during crises without immediate conditionality.