The United Kingdom's Official Reserves of Foreign Currency and Gold
Links to the International Monetary Fund
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 is that the NAB would replace the GAB as the primary financial resource for the Fund in the event that it needs additional 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.
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