Gold was once used to underpin global monetary systems for centuries; however, most countries stopped backing their currencies with gold sometime around mid-1900s. Many governments still maintain large bullion stores as a safeguard against economic disaster.
Available data revealed that central bank gold reserves held steady during March, with purchases perfectly offsetting sales – this data informs our central bank demand estimates published in Gold Demand Trends.
How did the IMF get its gold?
From 1946 through the 1970s, the IMF amassed gold through Members’ initial subscriptions, subscription increases, sales to Members in payment for currency restitutions, or as part of debt repayment obligations. Additionally, sometimes gold was transferred back to members as part of debt repayment obligations.
Gold is stored in designated depositories. An early draft of IMF rules listed five such locations – New York, London, Paris, Moscow and Shanghai – as potential places where gold could be stored for safekeeping. Gijsbert Bruins of South Africa represented on the Board recalls how in discussions before adoption he advocated that its best possible storage should occur between New York and London as operationally it would provide maximum benefit.
Modest IMF gold sales to Sub-Saharan African nations and LICs could significantly strengthen its global role. Any such transactions should take place off market through central banks with predetermined schedules over time.
How does the IMF use its gold?
Gold played an essential part of international monetary system for years, with numerous currencies tied to its price of $35 an ounce and dollar fixed as its official reserve asset. Since nations stopped linking their currencies directly to gold however, its role as an official reserve asset has diminished considerably.
The Executive Board approved limited sales of Fund gold to generate resources for low-income country lending, using proceeds from such sales as part of its Poverty Reduction and Growth Trust (PRGT) concessional lending capacity enhancement program; contributions linked with such gold sales will count toward this package’s target of raising SDR 11.3 billion over 2009-14 (more than double of what the IMF’s PRGT could cover at that time).
The Board initially considered using these proceeds to bolster the Fund’s endowment for operations, but ultimately decided against this option due to potential disruption in the gold market. Instead, Executive Board will use a portion of these profits as seed capital for their new income model for funding non-program activities.
What is the IMF’s role in the gold market?
For nearly eighty years, the IMF has been an indispensable global institution that has assisted countries worldwide with economic reform efforts. Today it can also play an integral part in helping low-income countries (LICs) expand and reduce poverty via program lending through its Poverty Reduction and Growth Trust.
But not only does the IMF provide assistance to LICs through its policy expertise; its physical holdings – particularly gold deposits – also play a crucial role. The Fund holds more gold deposits than any other institution globally.
Historically, IMF members paid their subscriptions in gold and used it to repay loans extended by the Fund. With time, however, as economies changed and no longer linked their currencies to gold, the IMF modified its rules accordingly and now operates under Rule F-1 of its Rules and Regulations (added to its Second Amendment in 1978): not purchasing or selling it but keeping designated depositories for it in New York, London, and Shanghai.
What is the IMF’s position on gold sales?
IMF officials do not seek to create volatility by selling off vast quantities of gold; as a result, their sales have been limited to 403.3 metric tons–significantly lower than their total holdings.
Before authorizing the sale, in 2009 the IMF’s Executive Board agreed that profits from any limited gold sales would go toward creating an endowment to diversify away from lending and build an endowment fund that will increase concessional lending capacities to low-income countries.
In February 2010, the IMF made lip service to transparency, promising “regular updates on progress with on-market sales through its normal reporting channels.” However, no such updates ever took place as IMF officials have kept its details for its forthcoming on-market sales secret from public view citing their “sensitivity”.
