Gold and the International Monetary Fund 

The International Monetary Fund (IMF) is a global organization founded in 1944 after the Great Depression that drives financial stability and economic growth. Its members come from 190 countries and are offered loans, policy consultation, and education. The IMF primarily focuses on trade, fiscal policies, and sovereign debt.  

How Did the IMF Acquire its Gold Holdings? 

How does gold fit into this? When the IMF was founded, its members paid a portion of their quotas with gold. Members could also use it to repay credit to the organization or sell it. This practice, which took place for over 30 years, led to a substantial amount of gold holdings: 90.5 million ounces, to be exact.  

While the IMF is one of the world’s largest official holders of gold, they don’t use it as often as they used to. In April 1978, Congress passed the Second Amendment to the Articles of Agreement, which states that the IMF has no authority to purchase or engage in gold transactions (including loans). They can sell it outright or accept it from members who want to put it toward their loans, but these transactions require 85% majority approval from the Executive Board of IMF.  

IMF Gold Sales and the Market Impact 

Before the amendment, gold was occasionally used to help IMF members replenish their currency holdings, fund initiatives, and place funds in a trust. The IMF did not want to affect the gold market and put in several modalities to prevent fluctuations when a large-scale sale occurred.  

During 1999 and 2000, the IMF sold 12.94M ounces (approximately one-eighth of its holdings) to assist in financing debt relief as part of the Heavily Indebted Poor Countries Initiative (HIPC). First, the IMF sold the gold to Brazil and Mexico via a Special Disbursement Account (SDA) at the current market price and profits. Then, they were to accept the same amount of gold back from these countries at the same market price, ideally resulting in a net effect that did not affect the gold market.  

The plan for this substantial sale was widely criticized. The United States was overwhelmingly against it, according to a survey conducted by the World Gold Council. South Africa was also vehemently opposed to the sale. The opposition was mainly due to the recent falling prices of gold caused by central banks selling large quantities in the last few years, and both the US and South Africa were significant holders of gold at the time. The Bank of England was also against the sale as it had been one of the central banks conducting multiple sales with plans for more and experiencing a drop in spot price. Below, you can see the projected UK sales in 1999 and how the proposal of the IMF sale could possibly affect the price of gold. 

Despite the opposition, the IMF sale was a resounding success and did not affect the gold market.  

However, central banks and their erratic selling habits continued to cause public concern over the effects on the market.  

As a result of the growing concern, a Central Bank Gold Agreement (CBGA) was put in place at the IMF annual meeting in September 1999. The 15 central banks involved in the agreement included the central banks of Sweden, Switzerland, the United Kingdom, and the Eurosystem. Over time, the number of participants in the agreement grew to 21 central banks. The agreement stipulated that central banks were limited to how much gold they could sell in a year. This agreement helped stabilize the gold market and led to more transparent partnerships between the banks and their international trading partners. Initially expected to last only five years, the agreement was renewed thrice and expired in September 2019. During this time, the price of gold has continued to grow exponentially. While the IMF was not directly involved in the agreement, working with the central banks that were part of the agreement (many of whom were members of the IMF) contributed to the IMF’s mission of helping low-income countries in a way that did not affect the gold market, which in turn helped bring the IMF into a more positive light for its members with significant gold holdings.  

 In 2009, the IMF decided to sell 12.97M ounces of gold as part of a new income model to create a more stable long-term financing trust with low-to-no interest rates for low-income countries called the Poverty Reduction and Growth Trust (PRGT). This amount of gold, which was substantial, was again only one-eighth of its total holdings. To prevent the gold market fluctuation, the new income model put in place a multitude of safeguards: 

• The gold in the sale can only be from holdings acquired after the Second Amendment of the Articles of Agreement.  

• The gold being sold will not contribute to the announced volume of sales.  

• The sale should go to multiple official sources instead of one to redistribute official holdings without affecting the total holdings.  

• In the case of no direct purchasers, the gold will be sold on the market gradually.  

• Clear and constant communication about the sales with markets and international governments to avoid any kind of surprise.  

The sale was successful, and the gold market was not affected. The off-market sales with the central banks in India, Sri Lanka, and Bangladesh occurred in 2009, and the on-market sales were conducted from February 2010 to December 2010. The profits from the sale ended up being significantly higher than previously estimated, so the IMF Executive Board distributed a portion of the profits (700M) through an SDR to its members in 2012 in February and then again in September. 90% of the sale’s profits went toward the PRGT, which led to an influx of loans to multiple low-income countries.  

In recent years, there have been proposals for large-scale gold sales from the IMF to bolster the global economy due to the effects of the COVID-19 pandemic. The IMF has not announced any new plans for gold sales, but politicians worldwide are actively calling for them. We may see another historical sale in the coming years if the global economy continues to decline as it has been.