1. What is a Reserve Tranche?
It is the foreign currency including Special Drawing Rights that a member country may draw from the IMF at short notice.
The primary means of financing the International Monetary Fund (IMF) is through members' quotas. (Click here to fund to know how IMF is financed).
Each member of the IMF is assigned a quota or a membership fee, part of which is payable in special drawing rights (SDRs) or specified usable currencies or "reserve assets", and part in the member's own currency.
The difference between a member's quota and the IMF's holdings of its currency is a country's Reserve Tranche Position (RTP). Reserve Tranche Position is accounted among a country's foreign-exchange reserves.
A part of the member's quota can be withdrawn from the IMF without any interest during critical situations of a country such as Balance of Payment (BOP) crises. This part of the money which can be withdrawn without any interest is the Reserve Tranche Position (RTP). The reserve tranche represents the member’s unconditional drawing right on the IMF.
2. What is Indebtedness of IMF?
The IMF is also financed by borrowing from multilateral institutions and bilateral agreements where it borrows from countries. It forms IMF’s indebtedness. A country’s lending to the IMF is done under the General Arrangement to Borrow (GAB) and the New Arrangement to Borrow (NAB).
The sum of Reserve Tranche and IMF indebtedness form IMF’s reserve position.
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