According to the reports released in June 2009, the IMF or International Monetary Fund held around 103 million troy ounces or 3,200 tonnes of gold. For many years, the amount of gold in the reserves has been constant. In the third financial quarter of 2009, the International Monetary Fund made an announcement about selling one eighth of the holdings. The amount was around 403 tonnes.
The announcement was made on the basis of a new income model agreed upon by member countries in April, 2008. Subsequently, the IMF announced the sale of around 200 tonnes gold to India, 10 tonnes to the Republic of Sri Lanka, 10 tonnes to Bangladesh Bank, and 2 tonnes to the Bank of Mauritius. The sales of these reserves were conducted in different stages at existing market prices.
The International Monetary Fund maintains a special book value of the gold deposits. This internal book value if way below the market value. In 2000, the internal book value specified by the IMF was XDR 35. This is equivalent to US $45 per troy ounce. There have been many attempts to revalue the IMF’s gold bullion reserve to the current market value. However, it has seen resistance for a lot of reasons.
The primary reasons have been the calculation of gold reserves per capita, and official reported gold holdings. The International Monetary Fund maintains accurate statistics of national assets as reported by member countries. The data is used by the WGC or World Gold Council to periodically report and rank the gold holdings of members countries and various official organizations.
It’s worth mentioning that the gold amounts listed on the official website may not be physically located or stored in the country. The primary reason is that central banks normally don’t allow independent audits of the reserves.
Gold Reserves in the International Monetary Fund
Gold had always played a very important role in the International Monetary System. However, the scenario changed after the collapse of Bretton Woods system of standard, fixed exchange rates in 1973. Since then, the role of gold in the IMF has diminished.
But this precious metal still remains a very important asset in the reserve holdings of many different countries. The International Monetary Fund is still the largest holder of gold in the world.
The IMF wanted to comply with the new income model suggested in April, 2008. Due to this, funds from some limited gold sales were used to boost the institution’s lending capacity and establish an endowment. The International Monetary Fund started lending more money to low income countries.
How the IMF Acquired it’s Gold Holdings
Currently, the International Monetary Fund holds approximately 2,800 metric tons or 90.5 million ounces of gold at specific depositories. Based on gold’s historical cost, the International Monetary Fund’s gold holdings are valued at SDR 3.2 billion. This is equivalent to $4.8 billion.
However, if you value these holdings at current market prices, the value is closer to SDR 73.8 billion. This is equivalent to $113.2 billion. According to statistics, the International Monetary Fund has acquired the gold holdings through four different channels :
The International Monetary Fund was founded in 1944. At the time, it was decided that around 25% of initial quota increases and quota subscriptions were supposed to be paid in gold. The amount paid represents the largest source of the International Monetary Fund’s gold.
All payments of interest rates and charges imposed on member countries regarding the IMF credit were usually made in gold. In addition to this, if a member country wished to acquire the currency of some other member, the only way was to sell gold to the International Monetary Fund.
The most prominent use of this provision was when South Africa sold gold to the IMF in 1970-71. Last but not the least, member countries used gold to repay the International Monetary Fund for extended credit.
The IMF Rules Surrounding Gold
The legal framework of the International Monetary Fund for gold is straightforward. When the institution was established, the member countries designed a proper framework for regulating the gold reserves. Since then, there have been many changes to the framework :
Role of Gold – The Article of Agreement was amended for the second time in 1978. This fundamentally changed the basic role of gold in the IMF’s International Monetary System. The IMF eliminated gold’s use as a common denominator of the post World War II currency exchange rate system. It’s use as the basis of monetary value of the SDR or Special Drawing Right was also eliminated.
The International Monetary Fund also abolished the standard price of gold. The institution ended its mandatory use in financial transactions between member countries and the IMF. In addition to this, the International Monetary Fund required to avoid establishing or managing a fixed price of gold.
Transactions – The second amendment made to the Articles of Agreement limited the use of gold in the International Monetary Fund’s transactions and operations. It’s worth mentioning that the institution can still sell gold outright on the basis of prevailing market prices.
The IMF can also accept gold to discharge a member’s country’s financial obligations, such as loan repayment, at an agreed price. The agreed price will also depend on the prevailing market price at the time of offer acceptance.
It’s important to understand that such financial transactions require the Executive Board’s approval. The petition needs to get at least 85% majority during the vote. The International Monetary Fund does not have any authority to engage in other kinds of gold transactions, such as leases, loans, using gold as collateral, swaps and more. Moreover, the IMF does not even have the authority to purchase gold outright.
It’s worth mentioning that a lot has changed in the last 60 years. In the last 6 decades, there have been many instances when the International Monetary Fund wanted to return some gold to the member countries. It even wanted to sell some of the gold holdings. The major reasons for such instances are varied.
Between 1957-70, the International Monetary Fund sold a large part of gold on various occasions to replenish the institution’s holdings of various currencies. During the same period, some gold held by the IMF was sold to America, and even invested in the United States Government securities. This was done to offset some operational deficits. Through gold’s role in the IMF has diminished over the years, it still continues to play a significant role in the global economy.