UPSC Prelims 2020 question on Gold Tranche IMF

A reserve tranche is a portion of the required quota of currency each member country must provide to the International Monetary Fund (IMF) that can be utilized for its own purposes without a service fee or economic reform conditions.

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.

The reserve tranches that countries hold with the IMF are considered their facilities of first resort, meaning they will tap into the reserve tranche at a short notice before seeking a formal credit tranche.

The reserve tranche represents the member's unconditional drawing right on the IMF, created by the foreign exchange portion of the quota subscription, plus increase (decrease) through the IMF's sale (repurchase) of the member's currency to meet the demand for use of IMF resources by other members in need of balance of payments financing.

Hence option (d) — a credit system granted by IMF to its members — is the correct answer.