How Much Gold Does the IMF Have?
Gold is an invaluable international reserve asset, providing financial stability and backing creditor claims. Modest gold sales could enable the Fund to generate resources for subsidized lending to Low Income Countries (LICs).
Before 1977, members paid their subscriptions in gold. Since then, gold has returned to the Fund either through repayment of loans or as part of an increase in quota.
The IMF’s gold holdings
Gold holdings of the IMF have long been considered an indispensable component of its balance sheet and serve as a crucial buffer against global financial crise. Acquired from its members between 1946 and the late 1970s through initial quota subscriptions, increases, gold restitutions, or any number of other methods – their acquisition helped secure global stability.
As its market value far outstrips its cost on its balance sheet – defined as SDR 35 per ounce according to Articles of Agreement – many have called upon the IMF to sell some of its gold and use proceeds toward meeting pressing global challenges, such as mitigating coronavirus pandemic outbreak.
However, it should be remembered that this call does not rest on solid grounds. Selling IMF gold would likely cause significant disruptions in commercial markets and requires approval by a majority of members; even modest IMF sales would thus represent a considerable undertaking that must be carefully managed and executed.
Why the IMF holds gold
Gold holdings are one of the IMF’s greatest strengths on its balance sheet, being used as collateral against loans from countries around the world. This unique ability enables the Fund to bridge any gaps between central bank reserves and member country borrowing agreements, thus supporting its role as lender of last resort.
IMF gold was amassed between 1946 and the late 1970s through Members’ initial and increasing subscriptions to the Fund, along with various quota increases. According to its Articles of Agreement, profits from selling this “pre-second amendment” gold must be used for concessionary balance-of-payments lending (PRGT).
Over a decade ago, when IMF officials proposed selling 13 million ounces of gold to fund its “new income model,” many members opposed such sales on grounds they would disrupt gold markets and harm lower-income economies. Modest IMF sales of just a fraction could enhance both its global role as well as U.S. national interests while helping LICs.
The IMF’s role in the gold market
As the IMF is a quota-based institution, most of its resources come from capital subscriptions from member countries (known as quotas) based on an assessment of each nation’s relative position in the global economy. Quotas determine the size of loanable funds pools for individual members as well as voting power on its Executive Board; borrowed resources remain important complements when lending money to low-income countries through IMF lending programmes.
The IMF has traditionally generated non-program resources through selling some of its gold reserves. When they announced plans to sell 13 million ounces to finance its “new income model” over a decade ago, many gold producing countries and firms protested fearing any impact on gold prices. As it turned out, however, these off-market sales conducted to central banks over an extended period caused no disruptions to global markets; making this method the optimal way for IMF gold sales as additional PRGT subsidy resources for LICs.
The IMF’s gold sales
As the IMF holds such an enormous stockpile of gold, it occasionally sells some to central banks through the market. To minimize disruption of markets and avoid discounts from occurring during sales transactions, these sales are phased so as not to disrupt market liquidity and cause major fluctuations.
The IMF’s 2009 gold sales program has thus far successfully reduced its total holdings by approximately one eighth, realising profits for two purposes: creating an endowment to support operations at the Fund; and offering discounted loans through Poverty Reduction and Growth Trust, totalling about one billion at market rates to low-income countries.
Subsidized lending to LICs is an integral part of the IMF’s innovative financing mechanism, and modest gold sales could be an excellent way to finance it – although such action will require political will and agreement on terms.
Categorised in: Blog