Gold holdings of the IMF are seen as providing an essential pillar of global financial stability. Gold was central to the first international monetary system established through international agreement after World War II; central banks were required to deposit it at designated depositories in New York, London, Paris and Shanghai.
Modest IMF gold sales to help Sub-Saharan African nations and LICs could significantly bolster its global role, while at the same time contributing to U.S. national security.
The IMF’s gold holdings are a key part of its balance sheet
Gold has long been an essential pillar of global economies since ancient times. Due to its unique properties, it provides durable currency backing while also facilitating fast global transactions. When the IMF was founded in 1944, they used gold backing their loans to member nations; this system was known as “The Gold Standard,” lasting until 1971.
Gold holds an essential place in IMF balance sheets as a safeguard for creditor claims against it and provides significant financial strength to creditors. Even modest sales would generate ample resources to support Sub-Saharan Africa and low-income countries (LICs).
These revenues should be allocated toward debt relief for poor countries in order to save lives and protect fragile health systems during a coronavirus pandemic. According to Oxfam estimates, $19 billion would pay the salaries of 6.3 million nurses across Africa annually; furthermore these windfall profits represent an opportunity to invest more heavily in developing economies.
They provide a safe haven for investors
The United States is the primary shareholder in the International Monetary Fund, an institution which increasingly assists African and low-income nations to boost growth and reduce poverty. To raise funds for its efforts, the IMF needs international support for modest gold sales – it currently owns 90.5 million ounces which it values at SDR 35 per ounce; market prices would likely be significantly higher and this sale would create significant profits for itself.
For minimal disruption of the gold market, IMF sales should follow an operation similar to what happened between 1999 and 2000 – when some gold was sold at market prices and immediately used to settle upcoming loan repayments to members. Such an arrangement wouldn’t affect global gold prices and could be approved by 85 percent of Executive Board. Lastly, according to its Articles of Agreement rules governing such sales proceeds must only be used as intended.
They help the IMF manage its debt
Gold is an integral component of the International Monetary Fund’s reserves, accrued mainly through members’ initial quota subscriptions, increases and other methods such as gold restitutions or sales back to them for cash – these transactions help ensure global stability of dollars, euros, yen, Chinese renminbi and Japanese yen currencies.
IMF depositories are situated in New York, London, Shanghai, Paris and Bombay based on where its largest quota holders deposited gold during Bretton Woods conference.
IMF membership consists of 190 nations that each receive a quota that determines their voting power and borrowing capacity. Quota management is overseen by an IMF board of directors chaired by its managing director who, by convention, must also be from United States citizenship.
They are a source of revenue
Gold holdings of the IMF provide a crucial source of strength to its balance sheet and serve as collateral against creditor claims against it. Unfortunately, due to concerns over disrupting gold markets and meeting their 85 percent voting threshold for approval of any sales transactions (the Fund has not sold any gold since over 10 years), no sales of IMF gold have taken place since 2007.
Sovereign nations typically hold gold reserves as a sign of financial strength, while the IMF doesn’t need to do the same. Indeed, its market value of its gold holdings far outstrips their historic cost in its balance sheet.
Still, the IMF could use modest gold sales to generate resources for subsidy under PRGT without adversely impacting market price. A transaction similar to one conducted in 1999-2000 might involve selling off a portion of IMF gold to members with future loan repayment obligations and then using those proceeds to settle loan repayments with the Fund.
