Transcript of a Press Briefing
By UK Chancellor of the Exchequer Gordon Brown, Chairman of the International Monetary and Financial Committee, and International Monetary Fund Managing Director Rodrigo de Rato with John Lipsky, First Deputy Managing Director of the IMF, and Masood Ahmed, Director of IMF External Relations
Washington DC, April 14, 2007
"...QUESTION: Chancellor, there is a story in the Sunday Times running that you did not take proper advice on gold sales in the past. I wondered whether you had a comment on that.
MR. BROWN: Gold sales are a decision for the government. They were a decision that I made as Chancellor of the Exchequer in the right and proper way. Many countries at the time were doing exactly what we have been doing, and that is, diversifying our portfolio and reducing the risks. Actually, at the time, the Governor of the Bank of England, Eddie George, said to the Treasury Select Committee that the decision to sell gold was a perfectly reasonable portfolio decision. In other words, diversification of our reserves and reducing risk is in the national interest; it was the right long-term decision for our economy.
It was studied by the National Audit office at the time. It was also examined by the Treasury Select Committee. Indeed, the National Audit Office said that it was in a transparent and fair manner that the sale had happened while achieving value for money, so that is actually what happened..."
QUESTION: A much less sexy question following up on gold sales and the finance of the IMF, which I understand was a topic of the discussion at the lunch of the Finance Ministers today. I wondered what the Chairman's assessment is after this lunch of what the sentiments seemed to be at this time among the Finance Ministers regarding gold sales and, on the other hand, a much more active management of the Fund's resources, and could you put perhaps a percentage figure on the likelihood that we will see gold sales of the IMF in the coming year?
MR. BROWN: Rodrigo may wish to say something about the report and the work that he is going to do to take it on, and then I will say something about what Finance Ministers said in response.
MR. DE RATO: We had a chance to discuss with the Finance Minister the Crockett report, which I think has been well received by Finance Ministers from what I heard around the table. Now, I think, is the moment for me and staff to prepare a paper for the Board, and we will do so, based on the concept of a package of an income model or an income model based on a package-that is probably better English-and I think that, in that respect, the use of IMF resources, a more efficient use of IMF assets and resources will be part of that package.
Regarding the use of our gold, I think the recommendations of the Crockett Committee are very clear. If there is a decision to do so, it will be in a measured way, a very limited amount, about 1/8 of our gold resources. It will be managed in a way that the proceeds, after inflation, will be the ones that really apply to our income model.
In any case, any use of our gold will be done in the context of the agreement of central banks that was established, I believe, in 2004. I have to say that some of the gold-producing countries have expressed that, well, this is a way that could be seen as constructive but, of course, nobody has yet given any final position and I do not expect that nobody will do it until I do not make a formal proposal to the Board.
MR. BROWN: I think it is true to say that the Crocket report recommended that, if it were necessary that gold sales could happen, that it should be done in a measured way and it should be part of the 2004 central bank agreement about the ceiling on gold sales at any particular point in time.
What I found encouraging today was that there were countries who previously had not been prepared to consider gold sales and who were prepared to do so now. I think the next stage is the report from the Managing Director to the next meeting about how we move forward with this issue of the income of the Fund. There is no doubt that the gold sales are potentially a part of that.
[Mrt: Whoah! What a find.... :o) ]
Mrt: starts at 17th min, 26th min]
From the Crockett Report:ReplyDelete
"Gold sales have some well-known drawbacks...
The fact that gold holdings have a substantial component of unrealized value can be seen as a reserve against unforeseen contingencies.
In all matters related to gold sales, public communication would have to be handled with great care.
... the Fund’s gold holdings are, in a broad sense, the joint property of the membership. (To the extent that the gold in question is gold that the Fund held at the time of the Second Amendment, this gold represents primarily the proceeds of contributions of countries that were members at the time of the Second Amendment. It is for this reason that one of the options provided in the Articles for the disposition of this gold is restitution to these members at the price of SDR 35 per ounce.)
Post-Second Amendment gold is not subject to “restitution” at the Second Amendment price of SDR 35 per ounce. This is because, under the Articles, the restitution option is only available for the sale of pre-Second Amendment gold to countries that were Fund members at the time of the Second Amendment—reflecting the fact that this gold is derived mainly from quota payments that had been made by these members."
I take this discussion of restitution to mean that the IMF has sold all the gold it can at market prices in the 403mt sales; any other sales from the IMF gold reserves can be made only after giving members who funded the IMF's gold reserve prior to the second amendment first right of refusal, at SDR35 per ounce.
A good spot Blondie. Last night posts I planned to go today through as that is how I do it often...ReplyDelete
I was aware of those restitutions from Articles where it is written differently and it did not appear the way you write... but Your find and conclusions are very good.
The Crockett Commitee is quite a center of happening, as it seems, it has been on my spotlight for sometime, trying to figure out how/if the IMF unwind or how SDR could morph into something else... It still has potential and is valuable institution, best int respected org. We have so closing it does not make sense FWIW.
I did not got there (CC) yet and was postponing it trying to figure out the IMF.
...In articles it is mentioned how the closure of membership goes, how to dispose obligations, ballance accounts etc... Will send you links.
It puzzled me what will happen to the 2814t if ECB & their CBs would walk away. It writes that it stays at IMF. So dispensing it totally? i do not think so.
Will link it for you later as writing from phone.
Blondie, look at members at that time:ReplyDelete
Members of the Committee and their alternates
• Andrew Crockett (Chairman)
• Mohamed A. El-Erian
• Alan Greenspan
• Tito Mboweni
• Guillermo Ortiz
• Hamad Al-Sayari
• Jean-Claude Trichet
• Zhou Xiaochuan