Why Does the IMF Have Gold?
Gold played an essential role during centuries past when fixed currency rates were the norm, yet IMF holdings have decreased since the end of the gold standard era. At present, 90.5 million ounces are stored at designated depositories around the world.
In April 1978, the IMF implemented its second amendment of Articles, By-Laws, Rules and Regulations which included revising Rule F-1 on Gold Depositories.
It’s a sign of financial strength
Gold was once an essential component of the international monetary system; currency rates were often pegged to gold until 1973 when this fixed currency system ended; since then however, gold has remained an invaluable reserve asset, held by institutions such as the IMF which hold approximately 90.5 million ounces at designated depositories.
The International Monetary Fund’s gold reserves are used to bolster currencies of countries experiencing financial issues and pay interest on its loans to member countries using gold reserves. Furthermore, profits from such sales are distributed back amongst member nations as profit sharing agreements are in effect.
IMF gold deposits are governed by its Articles of Agreement, By-Laws and Rules and Regulations. Rule F-1 in particular addresses designated depositories according to Article XIII Section 2, while having been amended twice – most recently in April 1978.
It’s a security
IMF was created as an international monetary system to rebuild global economies after World War II, with its articles mandating that member countries link their currencies with gold as a way to stabilize currency values, while using IMF as an intermediary in purchasing or selling other currencies.
The IMF requires that a portion of its gold holdings be kept in depositories designated by its members – namely New York, London, Paris and Bombay. Furthermore, IMF accepts gold from its loan-repaying members which it sells at current market prices.
The IMF Executive Board-approved sale of IMF gold helps shore up its financing and increase capacity to offer concessional lending to low-income countries, but proceeds cannot be used directly for low-income country lending.
It’s a hedge
Gold has long been seen as an effective hedge against inflation. While its purchasing power generally keeps up with inflation over the long-term, if inflation accelerates too rapidly it may fall behind and this causes its price to be affected negatively during periods of high inflation.
Since 1944, when the International Monetary Fund (IMF) first started operations, member nations contributed 25% of their initial contributions in gold; over time as their quotas increased they also used it to pay interest on loans from the Fund using gold as payment. Over time this led to massive accumulations of gold within its vaults.
Recent years have seen the IMF sell some of its gold reserves to ensure a sustainable financial foundation and to increase lending to low-income countries. Profits from these sales were distributed among members, including some of the poorest countries worldwide; remaining gold will remain within its reserves.
It’s a store of value
IMF gold is stored at various designated depositories around the world that have been authorized signatories that hold IMF accounts at third-party gold vaulting and storage facilities. Furthermore, there are rules set by IMF regarding their storage practices for their gold reserves.
From 1946 through the late 1970s, gold in the IMF vaults was amassed through Members’ initial subscriptions, subsequent increases, selling of their gold to or paying back as repayment obligations. Much of it was used to pay foreign exchange obligations of members as well as provide low-interest loans for developing countries.
Due to various geopolitical considerations that support gold as an international reserve asset, the IMF does not plan to sell its current holdings of gold any time soon. Should an emergency require selling it at some point in the future, however, a phased on-market sales approach would likely be taken alongside an extensive communications strategy and robust governance and oversight framework.