Why Does the IMF Have Gold?
The IMF maintains an impressive stock of gold, providing it with considerable financial strength and protecting it against creditor claims. With these modest sales approved by its Executive Board, it will help put its financing on a more sustainable long-term path as well as increase capacity to provide concessional loans to low-income countries.
1. It is a form of currency
Gold reserves are an icon of financial strength and serve as an insurance policy against creditor claims against the IMF. As of 2012, this amount amounted to 2,814 metric tons or 99,261,036 ounces stored across several vaults worldwide and could potentially be sold off to generate subsidy funds for PRGT without disrupting markets or forcing other members into selling off gold holdings themselves.
Selling even a portion of this highly valued asset would require approval by 85 percent of the Executive Board and congressional support in the US, and profits from outright sales must only be used towards operations consistent with “the purposes” of the IMF – making outright gold sales nearly impossible. Early drafts of IMF rules however include Moscow in their list of depositories along with New York, London and Shanghai.
2. It is a store of value
Gold is more than just currency; it serves as an invaluable store of value and reserve asset. Some nations even use gold to stabilize their exchange rates by pegged them against it.
IMF members were upset over its practice of selling gold to help finance loans to low-income countries, as these transactions provided windfall profits to some members while selling at market prices (even though IMF valuation of its gold was under $50 per ounce; see IMF Factsheet on Gold for more details).
IMF Gold Sales require Executive Board Approval – which requires 85 percent support of Executive Board membership to succeed. In order for IMF sales of gold to raise subsidy resources for PRGT, a coalition of countries would likely need to agree that some of their gold can be sold off and sold as reserves to IMF; such an agreement might prove difficult due to most IMF gold being stored with central banks and official depositories.
3. It is a form of insurance
The International Monetary Fund’s gold is both valuable and costly, with its market value exceeding its cost on their balance sheets by $170 billion. As a result, calls have been made for them to sell some of their gold reserves so as to help poor countries manage their Covid-19 debts more easily.
At present, the IMF can only sell its gold on the open market with approval by at least 85% of its Executive Board – this arbitrary threshold effectively prevents sales.
Gold was amassed for the Fund between 1946 and the late 1970s via Members’ initial subscriptions, increased quota increases and various other means. As required by its Articles, By-Laws, Rules & Regulations (particularly Rule F-1) this gold is kept safe within designated depositories.
4. It is a form of collateral
Gold holds a key place in the IMF’s financial strength, serving as an insurance policy against creditor claims and providing an important buffer. Its market value far surpasses its book value which is recorded on their balance sheet.
Gold has long been used as collateral in international transactions. Between 1999-2000, IMF-members sold one eighth of their gold holdings through separate but related transactions to settle obligations due to the IMF.
Resources generated from gold sales will be used to subsidize IMF low-interest concessional lending to low-income countries, helping support global growth and alleviate poverty in some of the world’s poorest nations. IMF gold is kept in designated depositories located in New York, London, Shanghai, Paris and Bombay so Members may access it quickly and easily; bars tendered for deposit must meet assay requirements accepted by depositories as well as being undamaged when handed over for deposit by Members.