Reserve Tranche Position

Definition:The proportion of the required quota of currency that each International Monetary Fund
(IMF) member country must provide to the IMF, but can designate for its own use. The
reserve tranche portion of the quota can be accessed by the member nation at any time,
whereas the rest of the member's quota is typically inaccessible.
The primary means of financing the International Monetary Fund is through members'
quotas. Each member of the IMF is assigned a quota, part of which is payable in SDRs or
specified usable currencies ("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.
In exchange for the reserve asset portion of its quota payment, an IMF member acquires a
liquid claim on the IMFmuch like a demand deposit in a commercial bank. This claim is
called the reserve tranche position, and it is equal to the members quota minus the IMFs
holdings of the members currency in the General Resources Account (excluding currency
holdings that stem from the members own use of credit and holdingsone-tenth of 1
percent of the members quotaheld in the No. 2 Account for administrative payments).
The share of a members subscription maintained in reserve assets is initially about 25
percent of the quota payment but varies over time: the reserve tranche position increases
when the IMF uses the members currency to lend to other members (or for administrative
payments) and decreases when borrowing members use the currency to make repayments.
Reserve tranche positions are part of each members liquid international reserves because,
when a member has a balance of payments need, it may convert its SDR-denominated
reserve asset into SDRs or one or more freely usable currencies by drawing on the IMF. A
member may also be obligated to provide if necessary reserve assets of up to 100 percent of
its quota.
The reserve tranche can be considered as the facility of first resort. It stands apart from
the various financing facilities and instruments (see Section 2.3) in that a members reserve
tranche position is part of its own foreign exchange reserves. Purchases in the reserve
tranche do not therefore constitute use of IMF credit. To preserve this character as a reserve
asset available at the discretion of the member, the IMF has adopted reserve tranche
policies:
The definition of the reserve tranche (quota less holdings of the members currency)
explicitly excludes currency holdings arising from past use of IMF credit. This is intended
to enable members to make purchases in the credit tranches without having first to use
their reserve tranche. The member can choose which resources to use first.
Purchases in the reserve tranche are subject to a representation by the member of a
balance of payments need, as with any use of IMF resources, but the members representation of need cannot be challenged by the IMF at the time the purchase request is made.
(The IMF could, however review ex post whether the reserve tranche purpose was
contrary to the purposes of the Fund and take remedial action.)
Reserve tranche purchases are not subject to conditionality, charges, or repurchase
expectations and obligations.

Balances of a members currency are held by the IMF in designated depositories which are
the members central banks. Payment of the non-reserve-asset portion of quota
subscriptions is normally in the form of promissory notes (nonnegotiable, non-interestbearing securities) that are converted to currency on demand and are covered in the IMF No.
1 Account.

The IMF pays interest, called remuneration, on a members reserve tranche

position in the IMF, except on a small portion that is unremunerated. This
unremunerated (non-interest-bearing) portion of the reserve tranche position
was equal to 25 percent of the members quota on April 1, 1978that part of
the quota that was paid in gold prior to the Second Amendment of the
Articles of Agreement.
Historically, the gold tranche was never remunerated, and so this same
amount was set aside as unremunerated when gold payment of
subscriptions was ended. For members joining the IMF after that date, the
unremunerated portion of the reserve tranche is set at the average
unremunerated reserve tranche of all other members at that time.
The unremunerated portion of the reserve tranche remains fixed for each
member in nominal terms, but because of subsequent quota increases, it is
now significantly lower when expressed as a percentage of quotas.

Below are few top nations Reserve Tranch Positions:

The IMF Lending Mechanism: An Exchange of Assets