IMF Survey: IMF to Proceed with Limited Sales of Gold

IMF News, September 18, 2009

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The Executive Board approved the sale of up to 403.3 metric tons, or about one-eighth of the Fund’s total gold holdings.
The sales are intended to help finance a new income model for the IMF and to boost financing for concessional lending to low-income countries.
The IMF is a 186-member institution.

Sales will help make the IMF less dependent on its lending revenue to cover expenses, which include surveillance of members’ economic and financial policies and other non-lending activities.
A key element of the new income model is the creation of an endowment with the profits from gold sales.
The endowment would be invested in a manner consistent with the public nature of the funds and would generate income to help cover the Fund’s administrative expenses.
The new income model is based on the January 2007 recommendations of the Committee of Eminent Persons to Study the Sustainable Long-Term Financing of the IMF, chaired by Andrew Crockett.

The IMF set a firm limit on the amount of gold to be sold at 403.3 metric tons; this amount has not changed since the Executive Board endorsed the new income model in April 2008.
The IMF will inform markets before any sales on the gold markets begin.
Prior to any market sales, the IMF would be prepared to sell gold directly to central banks or other official sector holders at market prices, shifting official gold holdings without changing total official holdings.
Any gold sales on the market would be phased over time, following an approach similar to the one used by central banks participating in the Central Bank Gold Agreement.
Under the Central Bank Gold Agreement participants announced ceilings on total sales of 400 tons annually, and 2,000 tons in total during the five years starting on 27 September 2009; participants noted that the Fund’s sales can be accommodated under these ceilings.
On-market gold sales by the IMF will not add to the announced volume of official sales.
Regular external reporting on gold sales will be provided.

Following a 1978 amendment to its Articles of Agreement, the IMF may sell gold outright only on the basis of prevailing market prices, or may accept gold in the discharge of a member’s obligations at an agreed price based on market prices at the time of acceptance; these transactions require an 85 percent majority of total voting power.
Key gold transactions listed in IMF history:
- Sales for replenishment (1957–70).
- South African gold (1970–71).
- Investment in U.S. government securities (1956–72); IMF later reacquired 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; half sold in restitution at the then-official price of SDR 35 an ounce; the other half auctioned to finance the Trust Fund.
- 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 IMF debt relief for poor countries.

Earlier in the year, the IMF agreed to mobilize $17 billion through 2014 for lending to low-income countries.
A financing package, which includes resources linked to these gold sales, was agreed to generate the additional new subsidy resources of SDR 1.5 billion needed to help cover the cost of concessional interest rates on increased concessional lending by the Fund.
Managing Director Dominique Strauss-Kahn: “I am delighted that the Executive Board has given its overwhelming backing to limited gold sales to put the financing of the IMF on a sound long-term footing, and to enable us to step up much-needed concessional lending to the poorest countries. These sales will be conducted in a responsible and transparent manner that avoids disruption of the gold market.”

IMF Survey: IMF to Proceed with Limited Sales of Gold — September 18, 2009