Gold was once central to the IMF’s operations. At its establishment in 1944, members paid 25 percent of their initial quota in gold to use as interest payments on loans extended by the institution.
The IMF may consider selling some of its gold holdings to raise funds and support low-income countries. Even modest sales of IMF gold could strengthen its global role and support U.S. national interests.
The IMF’s Gold Holdings
The IMF currently owns over 90.5 million ounces (2,814.1 tons) of gold in designated depositories, having amassed it through Members’ initial quota subscriptions, subsequent increases and other sources such as paying interest on gold loans and purchasing it directly from members – such as South Africa’s sale of some of its gold to the IMF in 1970-71.
Although gold no longer is at the core of international monetary system, IMF sales could still provide vital support for creditors by improving its balance sheet and offering important backstop protections. Such sales would also assist African nations and low-income countries (LICs) promote growth and reduce poverty; the United States should lead in marshalling global support for this initiative; its proceeds should then be returned directly to national treasuries of selling members before returning them back into IMF’s core mission mission.
The IMF’s Gold Sales
The IMF has sold precious metals in order to raise cash for debt relief for low-income countries in the past, though it must adhere to stringent guidelines when selling gold reserves under IMF Executive Board approval.
Since over a decade ago, when the IMF last sold any gold to fund its “new income model”, the amount involved was minimal and did not cause disruptions on the gold market.
In that transaction, the IMF sold 403.3 metric tons (12,965,649 troy ounces) to central banks in India, Bangladesh and Sri Lanka over time so as not to disrupt gold markets.
The proceeds from sales were invested to generate income for Heavily Indebted Poor Countries (HIPC). A portion was transferred to low-income members so they can cover their financial obligations to the IMF more easily; total proceeds totaled SDR 9.5 billion ($15 billion), representing less than one eighth of IMF gold holdings at present.
The IMF’s Gold Purchases
Under the terms of its Articles of Agreement, profits from gold sales are directed into a Special Disbursement Account and used only for operations and transactions that support “the purposes of the Fund,” including lending to low-income countries. This stipulation specifically excludes lending.
The International Monetary Fund’s Executive Board recently approved a plan for allocating proceeds of recent gold sales among members, in hopes that these members will make transfers or new contributions to support concessional PRGT lending to low-income countries. Proceeds of sale should cover significant portions of some members’ quota commitments.
However, there remains a considerable discrepancy between IMF gold sales and central-bank purchases reported to the WGC; this gap exceeds four times its quarterly average over the last decade. While its exact causes remain elusive, likely contributors include transaction costs, relative returns, economic/financial uncertainty, geopolitical risks, sanctions risks or sanctions risk as potential factors.
The IMF’s Gold Requirements
IMF policies aim to avoid disrupting the gold market. Because gold is an expensive and rare commodity with variable transaction costs and returns and fluctuating supply/demand conditions, its price can be highly sensitive to changes or expectations of changes in physical holdings.
The IMF has adopted a policy stipulating that any future sales of its gold must receive support from 85 percent of members’ Executive Board votes in order to guarantee that proceeds of sales will be used solely for operations aligned with IMF purposes.
IMF gold is held in depositories designated by its five largest member quota holders. Rule F-1 was revised during a second amendment to IMF Articles in April 1978 to reflect a move from par value system with fixed prices for gold to an international monetary system characterized by floating exchange rates.