Question 55 from UPSC CSE 2020 - ECONOMICS

Question

"Gold Tranche" (Reserve Tranche) refers to

Accepted Answer

Correct Option: D. a credit system granted by IMF to its members

Strategy: Focus on the association of 'Gold Tranche' or 'Reserve Tranche' with international financial institutions. The term frequently appears in IMF contexts, distinct from the World Bank, WTO, or central banks' routine operations. Recognize that the IMF grants member countries access to a portion of their quota (reserve tranche), confirming the correct option. Eliminate others based on institutional mismatch.

Key Info: The Gold Tranche, also known as the Reserve Tranche, refers specifically to the proportion of quota that a member country contributes to the International Monetary Fund (IMF) which can be accessed with minimal conditions.

- Every IMF member country has a financial quota, a certain portion of which (about 25%) is in reserve assets (typically gold or widely-accepted foreign currency) called the reserve tranche.
- Members are entitled to draw on this reserve tranche at any time to address balance of payments needs, without stringent IMF conditionality or additional charges.
- Such access is often described as an 'automatic drawing right.' Usage beyond the reserve tranche enters the realm of conventional IMF credit facilities, with policy requirements and fees.
- The other tranches in the credit system are called 'credit tranches,' subject to more negotiation and review.
- The system was set up under the Bretton Woods system, post-World War II, to ensure international financial liquidity.
- The World Bank is a development bank, and WTO deals with international trade, both unrelated to reserve tranches.
- Central banks do conduct open market operations and manage reserves but do not have a 'gold tranche' system as institutionalized by the IMF.
- The reserve tranche is reported in IMF accounts as part of a country's 'reserve position in the Fund,' which is a component of its total international reserves.

Answer

Option A: a loan system of the World Bank

Answer

Option B: one of the operations of a Central Bank

Answer

Option C: a credit system granted by WTO to its preferences