Why Does the International Monetary Fund Have Gold?
The International Monetary Fund currently owns approximately 2,814 metric tons, or nearly 100 million ounces, of gold in various depositories across the world.
Modest IMF gold sales to aid African nations and low-income countries (LICs) would significantly strengthen its role while supporting U.S. national interests – so why can’t this happen?
Why do Sovereign Nations Hold Gold?
Gold has long been seen as a symbol of stability in an unstable world; its reputation as a safe-haven investment helps ease concerns over inflation and currency crises – two reasons central banks are buying up bullion at unprecedented rates these days.
Emerging economies such as Russia and China have been big buyers, spurred on by the global financial crisis that undermined confidence in dollar-backed financial systems. Their purchases helped diversify portfolios while becoming less dependent on Western governments who have become wary of Moscow’s geopolitical ambitions.
Gold’s low correlation to other assets and portability make it an effective tool to protect oneself in volatile markets. Nieuwenhuijs also notes that European central banks have equalized their reserves proportionate to GDP, creating the illusion of larger totals than they actually represent.
Why Does the IMF Hold Gold?
The IMF’s gold reserves are an essential cushion against fluctuations in currency markets and support lending to low-income countries. Recently, some gold has been sold off in order to generate proceeds and be put towards this purpose.
Although not required to sell its gold reserves, IMF’s Articles of Agreement allow for gradual on-market sales if necessary to protect its financial integrity. Any such sales did not prevent direct off-market gold sales to interested central banks or official holders who may request such sales as well.
Gold was initially acquired through subscription payments to the IMF. Following amendment to Articles of Agreement in April 1978, this provision was eliminated and current Rule F-1 adopted with reference to designated depositories under Article XIII Section 2. Initial distribution was intended to be evenly between New York, London, Shanghai and Paris; however this could change over time.
Why Does the IMF Need Gold?
As a global financial institution, the IMF exists to assist nations and economies out of economic difficulty. To do this, they lend short-term liquidity loans to nations experiencing balance of payments difficulties or implement poverty alleviation programs; additionally they lend funds directly to low-income nations that need help financing poverty reduction initiatives.
Gold plays an integral role in these strategies – providing security, diversification tools, trust-building measures, sales support and crisis intervention measures. Gold has long been part of IMF legacy that dates back to Bretton Woods.
The IMF is one of the world’s leading holders of gold with 2,814 tons stored across its vaults worldwide. Any sale from them would likely spur strong investor and private household demand looking to protect their wealth and portfolios; unlike Gordon Brown’s disastrous 400-ton sales, any IMF sale likely wouldn’t dent gold prices; instead it may even help boost them as the proceeds would help strengthen its financial resources and expand lending to low-income nations.
Why Does the IMF Sell Gold?
The IMF has a legal obligation to sell some of its gold to cover subscriptions to the Fund. At its founding in 1944, each country paid 25 percent of their initial quota in gold; as a result, approximately 90.5 million ounces are stored in designated depository facilities in New York, London, Shanghai, Paris and Bombay.
These sales could occur off-market and, over the course of two years, would represent only a tiny portion of global annual gold demand. Proceeds from such sales would go directly to low-income countries.
IMF profits from gold sales should be used to expand debt relief and assist poor countries during the Covid crisis. They should also be tied directly into contributions for its low-interest concessional lending facility, so rich countries don’t shoulder too much of a disproportionate share. Furthermore, China as the world’s biggest creditor must contribute its fair share as well.
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