Does the IMF Have Gold Reserves?
Since the outbreak of coronavirus pandemic, IMF gold sales profits have seen dramatic increases, totaling $19.3 billion. Oxfam is calling on them to use these windfall profits for debt cancellation in poor countries.
Original IMF rules restrict how sales proceeds of gold were to be spent, so most of its holdings were acquired before 1978 when its Articles were amended for the second time.
What is the IMF?
IMF stands for International Monetary Fund – a global financial institution providing loans to countries in need. The IMF functions include fostering global monetary cooperation, maintaining international payments system stability and encouraging high employment and sustainable economic growth to reduce poverty globally.
The IMF is funded by member contributions–known as quota subscriptions–determined by each country’s relative wealth and economic performance. These quotas determine how much money IMF can lend out and who has voting power on its board of directors; it may also supplement its resources through special drawing rights agreements and multilateral and bilateral borrowing arrangements.
IMF members–all of which must repay their loans–are called upon when experiencing economic shocks, often to increase foreign exchange reserves and reform their economies to prevent future financial disasters. Furthermore, the IMF surveys global conditions and advises its members how they can enhance their economies.
How does the IMF manage its gold holdings?
Gold holdings are an essential source of IMF financing and contribute significantly to its role as lender to countries experiencing crises. However, due to an amendment in its Articles of Agreement limiting such activities only at market price at which gold sales must be approved by an 85% majority vote of its Executive Board, IMF gold cannot be purchased directly from members or engaged in transactions other than sales of its holdings.
IMF gold sales are strictly limited in order to put its finances on a sustainable footing and increase its ability to extend concessional lending to low income countries. Any profits from sales may also be used to create an endowment fund that provides an alternate source of income that is better aligned with its many functions.
Sovereign nations typically maintain gold reserves as an internationally acknowledged sign of financial strength, building confidence in their currencies and economies. But the IMF doesn’t need all this gold; its mission is to promote economic growth and prosperity around the globe for its 190 member nations.
What are the IMF’s gold depositories?
IMF gold is stored in designated depositories and its depository rules are detailed in Rule F-1 of its Rules and Regulations which were last amended in 1978 to address IMF’s increasing dependence on gold through banning members from fixing exchange rates against it.
Between 1946 and 1970, most of the IMF’s gold was amassed through initial and increasing member subscriptions to the Fund; with some going back out through gold restitutions or repayment obligations. Gold sales profits generated from IMF operations or transactions that align with its purpose are allocated exclusively for use within its Special Disbursement Account.
Rule F-1 of the IMF allows for gold transfer between its storage locations and US Treasury storage locations, such as Fort Knox. Whether this practice can actually work remains unclear; an IMF staff document from 1956 indicated it might be possible; it was never tested though.
What are the IMF’s gold sales?
From 1946 through the late 1970s, IMF gold holdings were amassed through initial subscriptions from members, increased quota subscriptions, quota increases, transferring and selling gold as part of repayment obligations or as restitution sales. Gold also flowed back from IMF holdings back to members via charges (interest on use of their currency by IMF) payments or sales as payments of restitution obligations or charges (interest due on use of currency by IMF) sales or as repayment obligations payments.
In the late 1970s, the IMF sold one-third of its gold holdings – approximately 1,600 tonnes – in an effort to lower its impact on global economic activity. They offered this gold at only $35 an ounce; less than one-third of what would otherwise have been its market price at that time.
In 2009, the IMF completed its limited sales program of 403.3 tonnes of gold as part of its new income model and strategy approved by its Executive Board to increase lending capacity. To protect against market disruptions, special modalities were employed when selling this gold to ensure no disruptions.
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