Gold played a central role in the international monetary system until the collapse of the Bretton Woods system of fixed exchange rates in 1973. Since then, the role of gold has been gradually reduced. But it is still an important asset in the reserve holdings of a number of countries, and the IMF remains one of the world’s largest official holders of gold. Consistent with the new income model for the Fund agreed in April 2008, strictly limited gold sales of 403.3 metric tons were used to establish an endowment. Resources linked to these gold sales have also been used to boost the IMF’s concessional lending capacity to eligible low-income countries (LICs).
How the IMF acquired its gold holdings
The IMF held 90.5 million ounces (2,814.1 metric tons) of gold at designated depositories at mid-March 2013. The IMF’s total gold holdings are valued on its balance sheet at SDR 3.2 billion (about $4.8 billion) on the basis of historical cost. As of March 13, 2013, the IMF's holdings amounted to $143.8 billion at current market prices.
The IMF acquired its current gold holdings prior to the Second Amendment through four main types of transactions.
- First, when the IMF was founded in 1944 it was decided that 25 percent of initial quota subscriptions and subsequent quota increases were to be paid in gold. This represents the largest source of the IMF's gold.
- Second, all payments of charges (interest on member countries' use of IMF credit) were normally made in gold.
- Third, a member wishing to acquire the currency of another member could do so 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.
- Finally, member countries could use gold to repay the IMF for credit previously extended.
The IMF’s legal framework for gold
Role of gold. The Second Amendment to the Articles of Agreement in April 1978 fundamentally changed the role of gold in the international monetary system by eliminating its use as the common denominator of the post-World War II exchange rate system and as the basis of the value of the Special Drawing Right (SDR). It also abolished the official price of gold and ended its obligatory use in transactions between the IMF and its member countries. It furthermore required the IMF, when dealing in gold, to avoid managing the price of gold, or establishing a fixed price.
Transactions. Following the Second Amendment, the Articles of Agreement limit the use of gold in the IMF’s operations and transactions. The IMF may sell gold outright on the basis of prevailing market prices, and may accept gold in the discharge of a member country's obligations (loan repayment) at an agreed price, based on market prices at the time of acceptance. Such transactions require Executive Board approval by an 85 percent majority of the total voting power. The IMF does not have the authority under its Articles to engage in any other gold transactions—such as loans, leases, swaps, or use of gold as collateral—nor does it have the authority to buy gold.
Restitution. The Articles also provide for the restitution of the gold the Fund held on the date of the Second Amendment (April 1978) to those countries that were members of the Fund as of August 31, 1975. Restitution would involve the sale of gold to this group of members at the former official price of SDR 35 per ounce, with such sales made to those members who agree to buy it in proportion to their quotas on the date of the Second Amendment. A decision to restitute gold requires support from an 85 percent majority of the total voting power. The Articles do not provide for the restitution of gold acquired by the IMF after the date of the Second Amendment.
How and when the IMF has used gold in the past
Outflows of IMF gold occurred under the original Articles of Agreement through sales of gold for currency, and via payments of remuneration and interest. Since the Second Amendment of the Articles of Agreement, outflows of gold can only occur through outright sales. Key gold transactions included:
- Sales for replenishment (1957–70). The IMF sold gold on several occasions to replenish its holdings of currencies.
- South African gold (1970–71). The IMF sold gold to member countries in amounts roughly corresponding to those purchased from South Africa during this period.
- Investment in U.S. government securities (1956–72). In order to generate income to offset operational deficits, some IMF gold was sold to the United States and the proceeds invested in U.S. government securities. Subsequently, a significant buildup of IMF reserves prompted the IMF to reacquire this gold from the U.S. government.
- 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 member countries to reduce the role of gold in the international monetary system. Half of this amount was sold in restitution to member countries 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.
- Off-market transactions in gold (1999–2000). In December 1999, the Executive Board authorized off-market transactions in gold of up to 14 million ounces to help finance the IMF’s participation in the Heavily Indebted Poor Countries (HIPC) Initiative. Between December 1999 and April 2000, separate but closely linked transactions involving a total of 12.9 million ounces of gold were carried out between the IMF and two members (Brazil and Mexico) that had financial obligations falling due to the IMF. In the first step, the IMF sold gold to the member at the prevailing market price and the profits were placed in a special account invested for the benefit of the HIPC Initiative. In the second step, the IMF immediately accepted back, at the same market price, the same amount of gold from the member in settlement of that member’s financial obligations. In the end, these transactions left the balance of the IMF’s holdings of physical gold unchanged.
The IMF’s strictly limited gold sales (2009-2010)
On September 18, 2009, the Executive Board approved the sale of 403.3 metric tons of gold (12.97 million ounces), which amounted to one-eighth of the Fund’s total holdings of gold at that time. The gold authorized for sale was acquired after the Second Amendment of the IMF’s Articles of Agreement in April 1978 and thus not subject to restitution to IMF member countries, unlike gold the IMF acquired before 1978. The modalities for the gold sales were consistent with the priority of avoiding disruptions to the gold market.
This decision to sell gold was a key step in implementing the new income model agreed in April 2008 to help put the IMF’s finances on a sound long-term footing. A central component of the new income model was the establishment of an endowment funded by the profits from the sale of a strictly limited portion of the IMF’s gold, which the Fund had acquired after the Second Amendment of the Articles.
In August 2009, the European Central Bank and other central banks announced the renewal of their agreement (Central Bank Gold Agreement) on gold sales, which are not to exceed 400 metric tons annually and 2,000 metric tons over the five years starting on September 27, 2009. The announcement noted that sales of 403 tons of gold by the IMF could be accommodated within these ceilings. This ensured that gold sales by the Fund would not add to the announced volume of sales from official sources.
The first phase in the Fund’s gold sales was exclusively off-market sales to interested central banks and other official holders, which were conducted at market prices at the time of the transactions. In October and November 2009, the Fund sold 212 metric tons of gold in separate off-market transactions to three central banks: 200 metric tons were sold to the Reserve Bank of India during October 19-30; 2 metric tons to the Bank of Mauritius and 10 metric tons to the Central Bank of Sri Lanka in November.
In February 2010, the IMF announced the beginning of sales of gold on the market. At that time, a total of 191.3 tons of gold remained to be sold. In order to avoid disrupting the gold market, the on market sales were to be conducted in a phased manner over time. This followed the approach adopted successfully by the central banks participating in the Central Bank Gold Agreement. The start of on market sales did not preclude further off-market gold sales directly to interested central banks or other official holders. In September 2010, the Fund sold 10 metric tons to the Bangladesh Bank, reducing the amount of gold to be placed on the market.
In December 2010 the IMF concluded the gold sales program with total sales of 403.3 metric tons of gold (12.97 million ounces), as authorized by the Executive Board. Total proceeds amounted to SDR 9.5 billion (about $14.4 billion), of which SDR 4.4 billion was used to establish an endowment as envisaged under the new income model.
In February 2012, the Executive Board approved a distribution of SDR 700 million in reserves from windfall gold sales profits (realized because of a higher gold price than the assumed price when the new income model was endorsed by the Executive Board), subject to assurances that at least 90 percent of the amount would be made available for the Poverty Reduction and Growth Trust (PRGT). This distribution, which became effective in October 2012, was part of a financing package endorsed by the Executive Board in July 2009 aimed at boosting the IMF’s lending capacity in 2009–14. In September 2012, the Executive Board approved the distribution of SDR 1.75 billion in reserves from the remaining windfall gold sales profits as part of a strategy to generate subsidy resources to ensure the longer-term sustainability of the PRGT. As with the earlier distribution, this will become effective once satisfactory assurances have been obtained that at least 90 percent of the amount to be distributed will be made available to boost the PRGT.