Why Does the IMF Have Gold?
Within blocks of the White House is an esteemed global institution in which the US is the sole shareholder, helping African and other low-income nations promote growth and reduce poverty through aid from its African Development Fund. But the Fund needs your assistance if it wants to do even more!
Gold holdings provide fundamental strength to the IMF’s balance sheet. They are stored at designated depositories in New York, London, Shanghai, Paris and Bombay.
What is Gold?
Gold has long been esteemed and sought-after as a precious metal throughout human history, due to its attractive color and luster, resistance to corrosion, malleability, use in coinage, bullion and jewellery applications and as a symbol of wealth, prestige and power. Gold was used as coinage, bullion and jewellery products while also becoming associated with success in sporting events, as well as power depicted in fairytales such as Rumpelstiltskin or Jack and the Beanstalk tales.
Gold has many attractive qualities: it does not corrode, is an excellent conductor of electricity and heat resistance, and soft enough that it is often alloyed with other metals to form coins and jewellery pieces – these alloys, known as karats, ranging in hardness and ductility can even be called precious.
Modern technology is an enormous consumer of gold, and its uses span multiple areas within the electronic industry. Gold particles are often utilized to provide protective coatings on satellites and astronaut visors against electromagnetic radiation exposure and sun exposure.
Why is the IMF Buying Gold?
Central banks need a way to diversify their reserves in order to stabilize economies, and historically this meant linking their currencies to gold, a finite physical commodity. When countries tethered their currencies to gold, they could exchange dollar holdings at a set price, such as $35 per ounce, for gold.
Since the abolition of the global gold standard, nations have increasingly moved away from using gold as currency anchor. This has left the IMF with an immense quantity of gold that needs to be sold or distributed back among members in ways that do not disrupt commercial markets.
Traditionally, IMF gold sales have been used to provide debt relief for low-income countries. But many question whether that is the most efficient use of an asset with such high market value as gold sales proceeds may also help tackle pressing global challenges like climate change or pandemics – especially given sluggish global development aid spending.
How is the IMF Buying Gold?
IMF should sell modest quantities of gold to generate resources to sustain subsidized interest rates on future program lending to Low Income Countries (LICs), particularly Sub-Saharan Africa. Such sales must be carefully managed to avoid market disruptions while protecting U.S. national interests, since five large gold producing nations represent 30% of its Executive Board voting power.
Selling off-market to central banks through auction schedules extending over time could raise around $10 billion in windfall revenues for the IMF; less than 7 percent of their gold holdings would be sold, enough to finance projected LIC PRGT subsidy needs as well as providing resources to limit RST loan costs to LICs. Gold is popular with central banks due to its safety, liquidity and return characteristics – evidenced by its increasing presence in official foreign reserves over recent years, with most of its growth coming from emerging markets.
How is the IMF Selling Gold?
The IMF sells only a fraction of its gold each year–12.9 million ounces to be exact–for use in bolstering up its finances and offering low-cost lending to developing countries. Furthermore, profits from IMF gold sales have long been used to assist in cancelling debts of the world’s poorest countries through its Heavily Indebted Poor Countries Initiative (HIPC).
IMF Executive Board recently approved strict limits on future gold sales that adhere to its policy on holding it, while also endorsing an endowment model for the Fund that includes income generated from gold sales as an endowment income source – consistent with Central Bank Gold Agreement sales model as it would prevent disruption to sensitive private market for gold and help address global challenges more efficiently. Specific details will need to be worked out including how and when planned sales occur as part of this approach.
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