Why Does the IMF Have Gold?
The IMF is often considered the lender of last resort during times of economic distress, lending up to $1tn total across its 190 member countries. But its effectiveness has been widely debated; for example, Nobel Prize-winning economist Joseph Stiglitz believes its austerity policies have been harmful and counterproductive for many nations.
It is a store of value
The International Monetary Fund (IMF) is an organization composed of 189 member countries that manages global exchange rates and international payments systems, to maintain economic growth while alleviating poverty worldwide. Funded through subscription fees paid by members, each country’s quota determines voting power within the IMF as well as how much borrowing power each has within it.
The International Monetary Fund can assist countries in need through three distinct lending facilities. The Stand-By Arrangement offers financing for short-term balance of payments issues while the Extended Fund Facility addresses structural issues in macroeconomy that contribute to chronic imbalances of payments. Furthermore, IMF maintains a Special Drawing Rights (SDR) pool as an international reserve asset backed by five major currencies: U.S. dollar, euro, Chinese yuan, Japanese yen and British pound sterling.
It is a currency
Gold has long been used as a medium of exchange. Although no longer minting new currencies outright, central banks still maintain liquid reserves in gold for trading markets to use and trade transactions denominated in it. Since 1919, London’s daily Gold Fixing provides an established price in this market while bills and certificates with redeemable gold coins were popular until World War I.
It is a medium of exchange
Gold has long been used as a coinage metal, jewelry material and artistic medium. A rare element that forms in supernova explosions or dense star collisions, gold is one of the few substances with such properties that has ever existed in nature. Gold’s total quantity in existence is relatively limited and continuously recycled through trading on bullion markets. Central banks keep some of their liquid reserves invested in gold reserves while metals exchanges provide clearing services for transactions denominated in this currency. Even though fiat currencies replaced global gold standards in the 1930s, countries still hold significant amounts of gold for investment and trade purposes. Furthermore, daily procedures called London Gold Fixing establish a price of gold per ounce or gram.
It is a reserve asset
Central banks have recently increased their gold purchases for various reasons. They cite diversifying reserves and protecting against inflation while mitigating geopolitical and political risks. Furthermore, de-dollarizing strategies aim to lessen vulnerability against US sanctions as well as mitigate increasing counterparty risk.
Prior to 1971 when currencies were linked with gold, IMF members paid their quota contributions in bullion as they used it to repay any loans extended from the Fund. Since the end of this practice in 1972 however, the importance of gold as an IMF reserve asset has decreased, although it remains an essential asset.
Countries often keep significant stocks of gold on hand to support their currency, reassure investors and strengthen their standing internationally. Yet some experts contend that financial securities offer greater protection from inflation and economic volatility than gold does; additionally it’s costly to transport, warehouse and secure, doesn’t pay any dividends and difficult to use for transactions.
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