Archived World Gold Council Document

The Fund's major shareholders are still divided on the proposal to sell some of its gold to help poor countries. The Managing Director's progress report on this issue promises to be a key topic at the Fund's Annual Meeting in Hong Kong in September.

Background

The Fund holds 103.4m ounces of gold, worth some $36 billion at today’s prices. The stock was built up when member countries had to pay a quarter of their quota (subscription) in gold.

That arrangement ceased in April 1978, when the monetary role of gold was eliminated from the Fund’s Articles. Today, the Fund can accept gold in settlement of obligations only in cases approved by member countries holding 85% of the total voting power. The option has been used once, by Cambodia.

The Fund owns the gold. But governments own the Fund and lay down rules. These forbid it to engage in such gold transactions as loans, leases or swaps, or to use gold as collateral. The Fund may sell gold, but only with an 85% majority approval.

The last time it sold gold was in 1976 - 80, when a total of 25m ounces was disposed of in four auctions for the benefit of developing countries. An equal amount was returned to member countries in an exercise described as restitution, wrongly implying that the gold did not fully belong to the Fund. In all, the stock was reduced by one-third. By comparison, the current proposal is very modest, especially since the gold market is larger today than 20 years ago.

Need to finance debt relief

The proposal has arisen because the Fund’s ESAF programme - which provides highly concessional loans to low-income countries and is the centrepiece of the Fund’s contribution to the new joint debt initiative with the World Bank - will temporarily run out of money in 2000 - 2004, before repayments make it self-financing.

At the Annual Meetings last September, Managing Director Michel Camdessus said the Fund would try to collect as much as possible in bilateral contributions to fill the gap and only then consider the "optimisation of the management of IMF reserves". But he added that "there was the needed majority of Board members who consider that such optimisation would entail sales of an amount of gold up to 5m ounces".

Camdessus is still in the process of asking for bilateral contributions. He could only say at the Spring Meetings in April that:

"As a matter of fact we have secured more or less half of the financing needed for this operation - this, before any consideration of ‘optimising the use of our reserve’ - to use the cryptic language coined last September." (Press Conference, April 1997).

At a guess, some countries may offer contributions only if the Fund sells some gold, while others may do so only if it does not.

Industrial countries are divided

Among the main shareholders, the US and the UK have backed gold sales, while Germany, Japan and Switzerland were originally strongly opposed, with Italy and France only a little less so. Although there has been some softening, Germany in particular remains anti. It fears that even a small sale would:

When in 1995 the Executive Board reviewed the role of gold in the Fund, there was broad agreement that the Fund should continue to hold a "relatively large amount" of gold among its assets, not only for prudential reasons but also to meet unforeseen contingencies. However, "relatively large" has not been defined.

Not a done deal

For all his confidence, Camdessus cannot be sure of approval for a gold sale. It has not been put to a formal vote. Governments change (as in the UK). Governments can also change their minds. And the US administration has to obtain Congressional approval to cast its vote in favour - essential for an 85% majority.

If you have any questions or comments on this input, please address them to Robert Pringle at:
Public Policy Centre
World Gold Council
Kings House
10 Haymarket
London SW1Y 4BP
United Kingdom
(Fax: +44 207 839 4314)