We were surprised to hear that the employees of the International Monetary Fund have actually suggested sales of gold from their stocks to cover income shortfalls they have. We are even more surprised to hear silence from the Members of the International Monetary Fund. The calls they made echoed the calls from the German government and the French government to sell national gold for the same reasons, to shore up shortfalls of income.

Of course in the case of the I.M.F. the calls were made by people completely unqualified to make the call, as the gold is the property of their individual members and not the I.M.F. per se.

Permission of the members is needed before such sales can take place to the extent of 85% of the votes of the members including the U.S. Hence they well know that there are virtually zero chances of this happening. 

The IMF holds 3,217 tonnes of gold [103.4million ounces of gold], valued at today’s prices at over U.S.$66 billion. The I.M.F. acquired its holdings from member states through the original Articles of Agreement. [The Articles were amended in 1978, eliminating the direct use of gold in the exchange rate system]. The Articles of Agreement require any gold transaction to have an 85% majority of total voting power. The U.S. alone has 16.83% of the voting rights. For the US to support a sale, Senate approval is necessary. They have rejected any such call in the past and are more so likely to do so now. Other countries are also known to be against any sale. So these calls are likely to be ignored as ere the last calls.

In the past the I.M.F. did sell gold after the U.S. ceased to do so. The U.S. then supported the call to sell. Since then the U.S. has not sold its own gold or persuaded the I.M.F. to do so. The present I.M.F. attitude to Gold is:

“It is an undervalued asset held by the IMF, and provides a fundamental strength to its balance sheet. Gold holdings provide the IMF with operational maneuverability both as regards the use of its resources and through adding credibility to its precautionary balances. In these respects, the benefits of the I.M.F.’ gold holdings are passed on to the membership at large, to both creditors and debtors. The IMF should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons, but also to meet unforeseen contingencies. ”

Having said that the function of the I.M.F. is to act as a central monetary body. As part of this function it issued what it had hoped would be the ultimate currency, the “Special Depository Receipt” or S.D.R. against which, nations could issue their own currencies. The I.M.F. would simply issue more S.D.R.’. But few nations fell for this as it would be another paper currency, but under the effective control of the U.S. That horse didn’t run and the S.D.R. is certainly not accepted as the globe’s pivotal currency. But we do expect the battle between government controlled paper currencies and independent gold to continue, ad nauseum.

© 2006 Julian D. W. Phillips
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