The International Monetary Fund currently owns 2,814 metric tons of gold, making it the third-largest official holder after the US and Germany. At its inception in 1944, member nations paid 25 percent of their initial quota in gold for membership and frequently contributed extra gold due to increases over decades.
The Articles of Agreement
IMF is an international organization that provides financial support to countries experiencing actual, potential, or anticipated balance-of-payments issues. Financing for IMF operations relies on member countries’ Special Drawing Rights (SDR), which represent weighted sums of currency from five major industrialized nations: USA, Eurozone, Japan, China and UK as well as bilateral borrowing agreements.
The IMF’s managing director oversees its daily operations and is appointed for five-year terms by its Executive Board. They are assisted by one First Deputy managing director and three deputy managing directors.
Article VIII of the Fund’s Articles states that members cannot impose or maintain restrictions on payments and transfers for current transactions, discriminatory currency arrangements or multiple currency practices without first receiving approval from the Fund. Nonetheless, official action should not give rise to unreasonably wide exchange rate spreads and cross rate quotations that differ significantly from what would normally occur with commercial costs and risks associated with currency transactions.
Quotas
As soon as a country joins the Fund, they are assigned a quota reflecting their relative economic strength. Subscription payments must include national currency, gold and special drawing rights (which were at its founding backed by various international currencies).
A country’s quota determines its voting power in the decision making bodies of the Fund and access to financing through it, as well as forming the basis of allotment of SDRs in general.
Establishing the quota of any country involves complex issues of comparative economics. For instance, it may not be apparent that a formula based on national income provides the best indicator of a member’s capacity to contribute resources to the Fund in order to balance fluctuations in exports or correct temporary imbalances in their balance of payments – something made even more complex due to difficulties associated with measuring international trade.
Transactions
At its founding in 1944, members were required to pay 25% of their initial quota subscription and subsequent increases in gold. Over time, the Fund amassed over 153 million ounces worth US$21 billion at this point in time.
IMF gold reserves are held in designated depositories – historically New York and London were among them – to prevent disruptions in the gold market and as part of its Articles and Rules restrict profits derived from sales of this precious metal.
Normally, proceeds from gold sales are transferred to the Special Disbursement Account and used for concessional balance of payments assistance for members. However, according to Articles of Agreement proceeds may also be used for “other purposes”, such as helping members reach balanced creditor positions relative to their quotas. Since 2009, IMF has sold modest quantities without disrupting gold markets or having an impactful effect on prices.
Holdings
Gold holdings provide essential structural strength for the IMF balance sheet and creditor claims against it. Modest gold sales would help strengthen its unique financing mechanism by providing more resources for concessional lending to low income countries.
Formerly, members paid part of their initial quota payments into the Fund in gold, using its proceeds to repay loans extended by the IMF. Furthermore, members often stored their own gold at one of five IMF depositories located across New York, London, Paris Sydney or Bombay at that time.
This paper employs an econometric analysis of country-level data to examine global trends in the share of reserves held in gold as well as related factors, such as inflation, fiscal balance, trade openness and debt ratios. Furthermore, financial sanctions impact are explored on this ratio while providing an estimate for their effect on holdings by LICs.
