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> What Is the International Monetary Fund?
>
> David D. Driscoll
>
> Revised September 1998
>
> External Relations Department, Publication Services
> International Monetary Fund, Washington, D.C. 20431 U.S.A.
>
> [ Origins ] [ Quotas and Voting ] [ Organization ] [ Operations ]
> [ Exchange Arrangements ] [ Surveillance ] [ Consultations ]
> [ Financial Function ] [ Source of Finance ] [ Financial Assistance ]
> [ Charges ] [ SDRs ] [ Services ] [ Recent Activities]
>
> Despite its increased visibility as a result of the Asian financial crisis, the
> International Monetary Fund remains a mysterious presence on the international
> scene. Considerable confusion reigns about why it exists and what it does. Some
> observers, confusing it with the World Bank or another aid institution, are
> under the impression that the IMF exists to subsidize economic development in
> the poorer nations. Others imagine it as an international central bank
> controlling the creation of money on a world scale. Still others regard the IMF
> as a powerful and disapproving political institution, imbued with a missionary
> zeal for fiscal rectitude, that somehow compels its members to tread a path of
> economic austerity. The IMF is in fact none of these. It is neither a
> development bank, nor a world central bank, nor an agency that can or wishes to
> coerce its members to do very much of anything. It is rather a cooperative
> institution that 182 countries have voluntarily joined because they see the
> advantage of consulting with one another in this forum to maintain a stable
> system of buying and selling their currencies so that payments in foreign money
> can take place between countries smoothly and without delay.
>
> The IMF is the enemy of surprise.
<<End excerpt>>
> Gold in the IMF
> <Picture>
> September 5, 1999
>
>
>
> Before the Second Amendment of the Articles of Agreement of the IMF in April
> 1978, the role of gold in the international monetary system was central and
> pervasive. The Second Amendment contained a number of provisions that, in
> combination, were intended to achieve a gradual reduction of the role of gold in
> the international monetary system and in the IMF. However, gold is still an
> important asset in the reserve holdings of a number of countries, and the IMF
> remains one of the largest official holders of gold in the world.
> ------------------------------------------------------------------------
>
>
>
> Holdings of Gold
>
>
> The IMF holds 3,217,341 kilograms of gold (103.4 million fine ounces) at
> designated depositories, valued in the IMF's financial statements at SDR 3.6
> billion on the basis of SDR 35 per ounce (except for a minor amount accepted by
> the Fund in 1992 in partial settlement of a member's overdue obligations, and
> valued at the then-prevailing market price). Valued at current market prices,
> the IMF's holdings amount to some $30 billion. These holdings represent the
> balance of the IMF's stock of gold after the gold auctions and the restitution
> of gold to members in the period 1976-80. While gold is reflected as an asset in
> the IMF's balance sheet, it is not used in the Fund's operations and
> transactions. According to Article V, Section 12 (b) of the IMF's Articles of
> Agreement, any transactions in gold by the IMF require an 85 percent majority of
> the total voting power in the IMF. The IMF may sell gold outright on the basis
> of prevailing market prices; it may accept gold in the discharge of a member's
> obligations to the IMF at an agreed price on the basis of prices in the market
> at the time of acceptance. The IMF does not have the authority to engage in any
> other gold transactions, e.g., loans, leases, swaps, or use of gold as
> collateral, and the IMF does not have the authority to buy gold.
>
> Gold in the Articles of Agreement of the IMF
>
>
>
> The Second Amendment to the Articles of Agreement of the IMF eliminated the use
> of gold as the common denominator of the par value system and as the basis of
> the value of the SDR. The Amendment also abolished the official price of gold
> and abrogated the obligatory uses of gold in transactions between the IMF and
> its members. The Second Amendment required the Fund, in its dealings in gold, to
> avoid managing its price or establishing a fixed price of gold. Under the
> Amendment, members undertook to collaborate with the IMF and other members with
> respect to reserve assets to promote better international surveillance of
> international liquidity.
>
>
>
>
> The IMF's Policy on Gold
>
>
> In 1995 the IMF's Executive Board reviewed the role of gold in the IMF and
> concluded that its policy on gold should be governed by the following
> principles:
>
> •As an undervalued asset held by the IMF, gold provides fundamental strength to
> its balance sheet. Any mobilization of IMF gold should avoid weakening its
> overall financial position.
>
> •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 IMF's 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.
>
> •The IMF has a systemic responsibility to avoid causing disruptions to the
> functioning of the gold market.
>
> •Profits from any gold sales should be used whenever feasible to create an
> investment fund, of which only the income would be used.
>
>
>
>
>
>
>
> Background Information
>
>
> Sources of Gold
>
> The IMF acquired virtually all its holdings of gold through four main types of
> transactions under the original Articles of Agreement.
>
> •Subscriptions. The original Articles of Agreement prescribed that 25 percent of
> initial subscriptions and quota increases was normally to be paid in gold. This
> represented the largest source of the IMF's gold.
>
> •Payment of charges. Originally, all charges, i.e., interest on members'
> outstanding use of Fund credit, were normally payable in gold.
>
> •Repurchases. Members were permitted—and in some circumstances could be
> required—to use gold to repay the IMF for credit previously extended.
>
> •Purchases. A member wishing to obtain the currency of another member could
> acquire it by selling gold to the IMF. The major use of this provision was sales
> of gold to the IMF by South Africa in 1970-71.
>
>
>
>
>
>
>
> Uses of Gold
>
> Outflows of gold from the IMF's holdings occurred under the original Articles of
> Agreement through sales of gold for currency, and via payments of remuneration
> and interest. Sales of gold for currency were divided as follows:
>
>
>
> •Sales for replenishment (1957-70). In the late 1950s and in the 1960s, the IMF
> sold gold on several occasions to replenish its holdings of currencies.
>
> •South African gold and mitigation. In the early 1970s, the IMF sold gold to
> members in amounts roughly corresponding to the amounts purchased earlier from
> South Africa; it also sold gold in connection with payments of gold for quota
> increases by some members, in order to mitigate the impact of these payments on
> the gold holdings of reserve centers.
>
> •Investment in U.S. Government securities (1956-72). In order to generate income
> to offset operational deficits, some gold was sold to the United States and the
> proceeds invested in U.S. Government securities. A significant buildup of
> reserves through income from charges prompted the IMF to reacquire this gold
> from the U.S. Government in the early 1970s.
>
> •Auctions and "restitution sales" (1976-80). The IMF sold approximately one
> third (50 million ounces) of its then-existing gold holdings following an
> agreement by its members to reduce the role of gold in the international
> monetary system. Half of this amount was sold in restitution to members at the
> then-official price of SDR 35 per ounce; the other half was auctioned to the
> market to finance the Trust Fund, which supported concessional lending by the
> IMF to low-income countries.
A<>E<>R
~~~~~~~~~~~~~~~
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