IMF says board discussed US 650 Billion dollars expansion of reserves

IMF says board discussed US 650 Billion dollars expansion of reserves

Subject : International Organisations

Context : The International Monetary Fund’s executive board on Friday discussed a proposed $650 billion expansion of its emergency reserves, marking the next step in a process expected to be completed in August, the IMF said in a statement.

Concept :

• G7 leaders this month welcomed the proposed expansion of the IMF’s emergency reserves, and backed a global target of providing $100 billion to the most vulnerable countries.

Reserve Tranche

• 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.
• Initially, member nations’ reserve tranches are 25% of their quota, but this position can change according to any lending that the IMF does with its holdings of the member’s currency.
• The reserve tranches that countries hold with the IMF are considered their facilities of first resort, meaning they will tap into them before seeking a formal credit tranche that charges interest.
• 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.