 I.M.F. statement contradicts sales drive by Chancellor
Brown
Julian D.W. Phillips
Gold-Authentic Money
5 February, 2005
The International Monetary
Fund issued a statement some time ago, which read as follows:
-
"Gold is an undervalued
asset held by the I.M.F., and provides a fundamental strength
to its balance sheet. Gold holdings provide the I.M.F. with operational
manoeuvrability 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.'s gold holdings are
passed on to the membership at large, to both creditors and debtors.
The I.M.F. should continue to hold a relatively large amount
of gold among its assets, not only for prudential reasons, but
also to meet unforeseen contingencies."
Such remains the policy of
the International Monetary Fund. It requires an 85% majority
of the Members of the I.M.F. for this policy to be changed. The
U.S. holds 17.3% of these votes, giving it a veto over such decisions.
It seems unlikely that this policy on gold will allow even the
real value of these assets to support debt write offs. Such statements
surely put the issue to rest.
On the surface, Chancellor
Brown, having been responsible for selling half of the United
Kingdom's gold, at prices 35% lower than present ones, for the
U.S.$, which has since depreciated another 35% against the Euro,
seems to have learned little from the experience. Put simply,
gold and debt write-offs are two separate issues that should
not be joined in this way. It will be surprising if this International
Monetary body would want to follow Mr Brown's path.
Perspective
To gain perspective
on this matter, a reminder that Europe's Central Bankers, in
1999 drew up the "Washington Agreement," under the
approving eyes of the U.S. [Greenspan in particular] and Japan,
so that the world could move away from the belief that Central
Banks were determined to sell their gold in the public market
places, to one where they gained transparency into Central Bank
gold sales. [The cessation of U.S. sales of gold, decades ago
and their retention of gold reserves clarifies U.S. Gold Policy].
After all gold forms an integral part of global reserves, used
as described by the I.M.F., above. Such a position has been reiterated
in the clauses of "Washington Agreement" of 1999 and
the 2004 Central Bank Gold Agreement.
In the second agreement enacted
last year, the Central Bank Gold Agreement set a ceiling to such
sales of gold at 500 tonnes per annum, which to date, seems unlikely
to be reached, in the next five years. It is of particular note
that the U.K. was not included in the second agreement, having
terminated its own sales of gold and seemingly differing with
the rest of Europe's Central Bankers on the matter. Indeed, it
appears that there is a split between the U.K and the signatories
of the 2004 C.B.G.A. on the matter of gold in monetary reserves
exists.
Europe's present position
on gold sales
Germany withheld its sales
of a scheduled 120 tonnes of gold this year, after the Bundesbank'
President had noted that gold was an effective ëcounter
to swings in the Dollar'. There is nothing to suggest either
way, that Germany will be a seller of gold in the future. Switzerland
has just completed its scheduled sales of 1300 tonnes of gold,
stating that its sales are now complete. Italy has stated it
has no plans to sell gold. Whilst France has stated it may sell
600 tonnes over the next 5 years, it would come as no surprise
if this policy were changed. As to these nations now agreeing
to sell their gold, held by the I.M.F., such a decision would
fly in the face of many years of policy discussion on the matter.
What is of pertinence is the value the I.M.F. places on the gold
held by itself, of $40 per ounce.
I.M.F. Gold Sales
or Revaluation of gold held by the I.M.F.
In our article, "I.M.F.
Gold - The issues involved," [please contact us at gold-authenticmoney@iafrica.com
for a copy] in July of last year, we discussed the issues involved
in selling I.M.F. gold. We pointed to the need to revalue I.M.F.
gold from the archaic practice of pricing it at $40 per ounce,
to market prices, before it could have a meaningful role in the
global monetary system. As to the philanthropic gift of the difference
in value of $40 and the real value of the gold, being given to
poor nations for them to write off their debt, one can only be
impressed by such a noble attitude. Cynics readily point to the
definition of a true patriot as being, "One who commits
you, to his cause," as being applicable to Mr Brown.
Certainly, his unrelenting insistence on this line will either
irritate or initiate a generous line towards the poor nations.
After all, the revaluation of gold from an unrealistic value
of $40 an ounce to market value, is hardly a "windfall profit,'
merely a correction of past unrealistic attitudes? It would be
surprising if anybody, but Mr Brown would see it as such.
It is unlikely that a revaluation
of gold held by the I.M.F. will be the means with which debt
write-offs will be paid for. The I.M.F. already has extensive
systems in place, including the H.I.P.C. initiative [Heavily
Indebted Poor Nations], which has succeeded in writing off or
down, the bulk of qualifying nations debts. Now in cooperation
with the World Bank, through a Grant system, they are doing more
still. Should more be required, such avenues would be appropriate.
It would be naïve to see the issue as a simple one. Gold
must be separated from poor nations' debt write-off.
Returning the I.M.F.
gold to its rightful owners
Should the member nations of
I.M.F. gold find themselves in disagreement with a decision of
the I.M.F. to sell their gold, the possibility of this gold being
returned to them, is there. But should this option be used, the
damage to the I.M.F. of such a position [a minority objecting
to the majority] would produce disunity in the global monetary
system, which could prove extremely disruptive.
We expect that the mere possibility
of such a disruption, of itself, would persuade the majority
not to sell any gold, but at best to revalue it.
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Julian D.W. Phillips
Email: gold-authenticmoney@iafrica.com
Copyright ©2005
Julian D.W. Phillips, Gold-Authentic Money
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