Credit Tranche

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Credit Tranche

Summary of Credit Tranche

A lending facility at the International Monetary Fund for nations suffering balance of payments difficulties. Before borrowing in the credit tranche, a nation must have exhausted its gold tranche facility. The gold tranche is equivalent to the amount of gold that a nation has deposited with the IMF, usually 25 percent of its total subscription in the fund. A nation can usually borrow up to the gold tranche at its option; beyond this, it must activate the credit tranche, which requires IMF approval. When such credit is approved, the borrowing nation is obliged to deposit with the IMF a specified amount of its national currency in return for foreign currencies loaned by the IMF. Repayment is in such currencies and under such a schedule as the IMF may specify. In addition, the IMF may oblige the borrowing country to adopt corrective fiscal or monetary policies as conditions of permitting access to the credit tranche.

(Main Author: William J. Miller)

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