Since 1913, the International Monetary Fund has served as an essential defender of global financial stability. Acting as lender-of-last resort for its 190 member nations, its role is essential in safeguarding global economic health.
IMF could quickly generate modest windfall resources to support LICs by selling gold at market prices – without disrupting global gold trading markets in any significant way.
The IMF’s Gold Holdings
Oxfam’s calculations indicate that the IMF holds vast quantities of gold. By April 13th, its stock had increased to $157 billion from just under $147.2 billion in January.
Gold reserves are an essential pillar of global financial stability and one way that the Fund helps the world’s poorest countries.
The Fund currently maintains five gold depositories – in New York, London, Paris, Shanghai and Bombay. At an Executive Board meeting prior to final adoption of IMF Rules and Regulations in 1946, Gijsbert Bruins of Netherlands and South Africa (both non-qualifiers due to quota size criteria) requested one be located in Moscow as a depositary site.
However, IMF architecture does not appear to permit selling some gold for specific uses; such sales would need the approval of 85 percent of its Executive Board–an extremely difficult hurdle for the IMF to cross.
The IMF’s Gold Sales
Since the pandemic began, IMF gold sales have produced $19.3 billion in profits – surpassing their book value for their holdings!
Oxfam’s analysis suggests that Oxfam could use this money to assist poor countries by providing significant debt relief, thus saving lives and protecting against future crises. Furthermore, such aid would ease pressure placed upon developing economies from global recessionary forces as well as reduce high-cost foreign loans that drain scarce resources.
But any plans to sell IMF gold may face political opposition, since full sales would require 85 percent approval by the Executive Board and could potentially cause disruption within markets or dent physical bullion demand. A full sale would need 85 percent of votes cast by all voting powers on its Executive Board – an unlikely occurrence considering that US holding 30% voting power would likely block such efforts. In practice this high threshold means only limited IMF gold sales could occur without disrupting markets and diminishing demand.
The IMF’s Gold Purchases
Gold reserves are considered essential to the Fund’s balance sheet, enabling it to provide safe loans at a reduced cost to member countries.
As a safeguard against potential market disruptions, the IMF’s current rules regarding gold sales provide for a two-step process: in step one, gold is sold on-market to participants of the Central Bank Gold Agreement (CBGA) at market prices; then, as soon as members settle their financial obligations to the Fund through payments of outstanding gold bars promptly back to them as per rule 2.
In 2009, the Executive Board adopted a financing package designed to increase the IMF’s PRGT concessional lending capacity for low-income countries by SDR 11.3 billion; contributions linked to windfall gold profits would finance this increased support.
As the largest shareholder of the IMF, the United States should lead an international effort to rally support for modest gold sales to Sub-Saharan African nations and LICs – strengthening IMF global role while simultaneously protecting American national security interests and aiding poor countries combatting Covid pandemic.
The IMF’s Gold Stock
Oxfam estimates that just $19.3 billion from IMF profits generated from selling its gold could provide funding to combat the coronavirus pandemic and other global challenges, with just such proceeds covering salaries for 6.3 million nurses in Africa for one year.
But these sales must remain carefully controlled as IMF Articles of Agreement only permit proceeds from selling gold to be transferred into a Special Disbursement Account and used to provide concessional balance-of-payments assistance to members. Transfers should only take place once an Executive Board has received assurances from that member that he or she will contribute towards PRGT as part of any distribution that comes their way.
Gold sales by the IMF will help secure its finances, as well as expand their ability to provide low-cost loans to developing nations. But as noted in their World Economic Outlook (WEO) report, risks to growth and inflation remain elevated due to Ukraine’s conflict.