UPSC Prelims 2020 Q17: Indian Economy – International Institutions & Reports
- (a) a loan system of the World Bank
- (b) one of the operations of a Central Bank
- (c) a credit system granted by WTO to its members
- (d) a credit system granted by IMF to its members
Answer: (d) a credit system granted by IMF to its members
Explanation
Gold Tranche (Reserve Tranche): IMF Credit Facility
| Option | Correct Description? |
|---|---|
| Loan system of World Bank | No - WB has different facilities |
| Operation of Central Bank | No - Central Banks don't issue this |
| Credit system by WTO | No - WTO deals with trade, not credit |
| Credit system by IMF | YES - Gold Tranche is IMF facility |
Gold Tranche (Reserve Tranche) is a credit facility granted by the IMF to member countries. Under the IMF quota system:
- Reserve Tranche (25% of quota): Available immediately without conditionality (also called Gold Tranche historically)
- Credit Tranches (1st, 2nd, 3rd): Require increasing policy conditionality
India has used IMF Credit Tranches during balance-of-payments crises (1991, 1992 - used Rs 1.8 billion SDR).
Answer: (d) a credit system granted by IMF to its members.
Why each option is right or wrong
- (a) Incorrect. World Bank loans are different - IBRD concessional loans, not Gold Tranche.
- (b) Incorrect. Central Banks do not issue Gold Tranches.
- (c) Incorrect. WTO is for trade regulation, not credit facilities.
- (d) CORRECT. Gold Tranche (Reserve Tranche) is an IMF credit facility available to member countries in proportion to their quota.
Key point
IMF Gold Tranche (Reserve Tranche): Equivalent to 25% of IMF quota. Available automatically without conditionality. Historically called Gold Tranche because IMF held gold reserves. Now called Reserve Tranche. Higher tranches have policy conditions.
Remember
Gold Tranche, also known as Reserve Tranche, refers to a credit system granted by the IMF to its members. It represents the first 25% of a member country's quota and is available without policy conditionality.
Common mistakes
- Confusing IMF with World Bank. IMF = macroeconomic stability + short-term liquidity; WB = development financing.
- Assuming all IMF credit requires conditions. Reserve Tranche is unconditional; higher tranches require policy commitments.
- Missing that 'Gold Tranche' is historical terminology (when IMF held significant gold); now 'Reserve Tranche' is the official term.
Exam tip
IMF vs World Bank: IMF = 189 members, focus on monetary policy + BOP crises. World Bank = development loans (IBRD, IDA, IFC, MIGA). IMF SDR (Special Drawing Right) is basket of 5 currencies: USD, EUR, CNY, GBP, JPY.
Sources
- International Monetary Fund - Facilities and Lending Programs
- IMF Articles of Agreement - Article V (Transactions with the Fund)