The primary means of financing the IMF 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). Although it is not held in the Exchange Equalisation Account, the UK's RTP forms part of the UK's official reserves. This is because the UK, in common with other members of the IMF, may, upon declaring a balance of payments need, draw down its RTP at short notice in the form of convertible foreign currency.
The SDR is an international reserve asset created by the IMF. Its value is defined in terms of a basket of the US dollar, the euro, the yen and sterling. The IMF has periodically created SDRs, and allocated them to members in proportion to their quotas. The UK's SDR allocation is a liability of the EEA and the resultant holding of SDRs by the UK are an asset of the EEA. IMF members are credited with interest on their holdings of SDRs and pay interest on their allocation of SDRs. Interest payments and receipts are made in SDRs.
Over the years the IMF has supplemented the quota system with other sources of funding: General Arrangements to Borrow (GAB) - These are long-standing arrangements under which the Group of Ten industrial countries stand ready to lend to the IMF to finance purchases that aim at forestalling or coping with a situation that could impair the international monetary system. New Arrangements to Borrow (NAB) - Since 1998 the Fund has had a SDR 34 billion facility at its disposal, provided by GAB members and other IMF members. The intention was that the NAB would replace the GAB as the primary financial resource for the Fund in the event that additional liquidity was required.
At the G-20 Summit in April 2009, world leaders pledged to support growth in emerging market and developing countries by boosting the IMF's lending resources to $750 billion. They committed to increase the resources available to the IMF by $250 billion through immediate contributions from some IMF member countries. The G-20 agreed that these bilateral contributions will subsequently be incorporated into an expanded NAB. The G-20's intention is to increase the resources available through a more flexible NAB by up to $500 billion. In addition, the G-20 supported a general allocation of the IMF's Special Drawing Rights equivalent to $250 billion to boost global liquidity.
When the IMF draws on these facilities, the UK advances currency to the IMF and receives an SDR-denominated claim on the IMF. This claim forms part of the official reserves.