Why Does the IMF Have Gold?
The IMF seeks to promote global monetary cooperation, protect financial stability and facilitate international trade while simultaneously working toward creating high employment levels and sustainable economic development worldwide. Furthermore, the Fund offers loans for countries experiencing balance of payments difficulties.
Gold sales can help the IMF get its finances on solid ground, enhance its capacity to provide concessional lending, and advance U.S. national interests.
Why the IMF Has Gold
Gold is an invaluable asset of the IMF, providing both financial strength and support to creditors. However, gold can also serve as an effective tool in advocating for poor countries’ interests.
In 2009, the International Monetary Fund launched limited sales of gold off market to central banks to help reduce market disruption and protect global financial stability.
The Fund currently holds 90.5 million ounces of gold, including an outsize contribution from the United States. On its books, this gold is valued at SDR 35 per ounce; however, market pricing of gold currently exceeds $1,800 an ounce – creating an opportunity for profit for the Fund.
The JDC suggests that moderate IMF gold sales could generate enough profits to cancel much of the debts of 73 poorest countries, reinforcing its role in combatting poverty while benefiting both Sub-Saharan African nations and U.S. national interests simultaneously.
Why the IMF Needs Gold
Gold reserves are of critical importance to the IMF’s financial stability and ability to offer low-income countries concessional loans at reasonable prices and terms. In order for it to keep doing this effectively, however, the Fund requires a steady source of new income that brings new sources of funds.
At present, the Fund generates its revenues by permitting its members to transfer their share of gold sales directly to PRGT or via subsidy contributions made directly to it. Unfortunately, both methods of income generation have limitations that are susceptible to political factors like changes in administrations.
The United States should lead in rallying international support for modest IMF gold sales that would increase funding for Africa and low-income countries. According to JDC estimates, selling less than 7% would leave $26 billion more in reserves at year’s end – enough to cancel debts of all of the 73 poorest nations around the globe.
Why the IMF Should Sell Gold
IMF gold sales would likely do nothing to reduce global gold demand and, thus, could yield substantial revenues for the Fund.
IMF gold sales would also avoid selling at the bottom of the market, like UK Prime Minister Gordon Brown’s infamous 400-tonne sale in 1999. Instead, they should take place during a strong bull market to generate windfall profits above book value and maximize windfall profits for IMF shareholders.
But the plan faces daunting hurdles. First, any gold sales must be approved by the IMF’s Governing Board and US has 17% of votes on that board – giving it an effective veto over any decision to sell. Second, IMF quota countries and central banks may oppose selling legacy gold at today’s record prices; IMF Spokesman Gerry Rice acknowledged this when speaking on their behalf: their reserves “provide fundamental strength to its balance sheet, enabling lending at reduced costs” to member countries.
Why the IMF Should Buy Gold
Gold serves as an effective hedge in an increasingly dollar-dominated world, providing natural stability through stockpiling of gold reserves by nations with abundant gold holdings. Without having to maintain foreign exchange reserves for their national monetary systems, having a massive stockpile of gold makes the nation’s monetary system easier and less volatile.
From 1967 until 1971, IMF Articles of Agreement required members to deposit their gold subscriptions at any one of five central banks: New York, London, Paris, Shanghai or Bombay. These deposits provided usable resources that allowed it to begin lending.
Modest IMF sales of gold would generate revenue that could be used to fund low-income country lending through the Poverty Reduction and Growth Trust (PRGT). Profits generated could also help strengthen its financial strength as an insurance policy against creditor claims against it.
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