Thursday, November 24, 2011

PIIE - IMF response to the World Gold Council

 Stanley Fisher; 13 August 1999


"Thank you very much for the copies of the interesting study "A Glittering Future? Gold Mining's Importance to Sub-Saharan Africa and Heavily Indebted Poor Countries" which was commissioned by the World Gold Council. The study and your letter raise a number of important issues.
Let me assure you that I share your concerns about the social impact of the long-term decline in the gold price on many low-income countries. This decline has resulted from a variety of factors, including cyclical developments, the diminished attraction of gold as an investment alternative, expansion of mine output, central bank lending of gold, and the declining role of gold as a monetary asset..."

"A pure revaluation of the Fund´s gold would result only in an accounting gain and would not provide the cash resources needed to fund the initiatives. Moreover, a revaluation of gold is inconsisten with the Tund´s Articles of Agreement."

[Mrt: I am having difficulty in understanding this part, any ideas? What inconsistency in particular? Are Articles somehow blocking revaluation? Is it about revaluation of IMF gold in particular or gold price in general?]

"We seek to find a solution for debt relief that will minimize prices on the poorest countries. We seek to find a solution for debt relief that will minimize the impact on the market of the mobilization of the Fund´s gold at the same time while obtaining the needed funding for the ESAF and HIPC initiatives on a timely basis."


[Mrt: The above mentioned study is found here:]

A Glittering Future? Gold mining’s importance to sub-Saharan Africa and Heavily Indebted Poor Countries

• One of the overlooked consequences of the recent gold price fall has been a setback to the development of some of the world’s poorest and most heavily indebted nations.
• Of the world’s 41 Heavily Indebted Poor Countries (HIPCs) more than 30 are gold producers with at least 12 producing in excess of 3 tonnes a year. Production is rising in a number of HIPCs and the group’s total output is likely to be around 200 tonnes, on cautious estimates, in the year 2000, generating, at the price prevailing in mid-May 1999, more than $1.6bn in export revenues.
• In 9 HIPCs, gold accounts for at least 5% of export revenues with around 5 countries likely to join this group in the near future, and possibly more in the medium term. In some countries – Ghana, Guyana and Mali – gold accounts for more than a fifth of export revenue; Guinea and Tanzania are likely to join this group shortly.
• Sub-Saharan Africa, which includes 33 of the 41 HIPCs, currently produces 25.1% of the world’s gold. Three-quarters of this – 18.5% – is produced by South Africa but the share of global output of the remaining countries has doubled since 1990.
• In sub-Saharan Africa, gold comprises 7.8% of total exports of goods; discounting South Africa, 2.5%. In round terms, gold earns sub-Saharan African nations almost $7bn a year in foreign revenue.
• The damaging effect of the gold price fall on these countries goes far beyond the immediate impact on export revenues. Gold-mining’s multiplier effects bring additional jobs, wages and government taxes. Mining facilitates the growth of legal, physical and financial infrastructure.
• Gold mining is sometimes one of the few available channels for diversifying a country’s exports and production, which in turn is often a critical stage in the development process.
• The paradox is that the future growth of these nations is being undermined by precisely those who wish to proffer a helping hand – the International Monetary Fund and the governments of some well-developed countries.
• With the threat of gold sales from the IMF, Switzerland and the UK, the price of gold has fallen sharply. Key members of the IMF have said they wish to see it sell as much as 311 tonnes of its gold to fund debt relief.
• Sales and the threat of sales by central banks and the official sector are the single biggest factor preventing a price recovery. This represents a major obstacle to the expansion of gold mining in underdeveloped nations, and thus diminishes opportunities for genuine, long-lasting and sustainable economic growth in gold-producing HIPCs."



  1. Q: Does it mean that IMF Agreements are blocking revaluation talks?

    No. WGC was only suggesting a revaluation from the IMF book value (same as US, $42.22) to market value which was about $260 at the time, and only to help the really poor countries that mine gold. This whole document just shows how out of touch the $IMFS was in 1999. Like I said yesterday, “: If you could put yourself back in time just prior to other punctuation events, you'd be hard pressed to find official statements that revealed what was about to transpire.”

    Case in point. Fischer should have known the POG was about to take off with the WAG and euro launch and never look back, right? Another knew it. Fischer, the IMF, the BOE and the rest of the $IMFS was clueless to this…

    Tuesday, January 1, 2002 - Launch of euro notes and coins
    Friday, February 8, 2002 - GOLD ABOVE $300
    Monday, December 1, 2003 - GOLD ABOVE $400
    Thursday December 1, 2005 - GOLD ABOVE $500
    Monday, April 17, 2006 - GOLD ABOVE $600
    Tuesday, May 9, 2006 - GOLD ABOVE $700
    Friday, November 2, 2007 - GOLD ABOVE $800
    Monday, January 14, 2008 - GOLD ABOVE $900
    Monday, March 17, 2008 - GOLD ABOVE $1000
    Monday, November 9, 2009 - GOLD ABOVE $1100
    Tuesday, December 1, 2009 - GOLD ABOVE $1200
    Tuesday, September 28, 2010 - GOLD ABOVE $1300
    Wednesday, November 9, 2010 - GOLD ABOVE $1400
    Wednesday, April 20, 2011 - GOLD ABOVE $1500
    Monday, July 18, 2011 - GOLD ABOVE $1600
    Monday, August 8, 2011 - GOLD ABOVE $1700

    Q2: What does he mean by "inconsistent"???

    Since 1993, the last word in international reserves has largely gone to the IMF as set forth in the Fifth Edition of its Balance of Payments Manual which can be found on the IMF website here.


    444. In principle, all transactions in reserve assets are recorded at market prices—that is, market exchange rates in effect at the times of transactions, market prices for claims such as securities, and SDR market rates as determined by the Fund. Monetary gold transactions are valued at the market prices underlying the transactions. For valuation of stocks of reserve assets in the international investment position, market prices in effect at the ends of appropriate periods are used.

    In other words, the IMF guidelines are out of step with modern best practices insofar as they lamely prescribe that reserve assets be recorded at the market price in effect at the time of the transaction that acquired them. Hence, there is no provision for periodic MTM adjustments to provide a rational reassessment of the evolving market-health of the balance sheet.




  2. ... cont...
    Further: The market price of gold wasn't really the issue of discussion between Fischer and the WGC. (BTW, the WGC is a member of the $IMFS). The market price of gold had been falling at the time (thanks in part to Brown's bottom) and that was hurting the poor (HIPC) countries that mine gold. The IMF needed funds to help those HIPC countries and the WGC proposed that revaluing the IMF's gold would free up some funds. The IMF correctly responded that a bookkeeping revaluation would only create a bookkeeping gain, and not provide any real funds. Furthermore, the IMF pointed out that a bookkeeping revaluation was against its own rules.


  3. Disclosure:
    Q: Mortymer
    A: FOFOA
    ...posting Mrt on behalf of FOFOA.

  4. As far as inconsistencies, the IMF does not trade real goods, hence gold's true function does not really apply to it in the way it does to nations... the IMF is "supranational".

    The IMF exists in the nominal rather than the real world.

  5. I have not read more than the first couple of paragraphs of this post, nor the other comments yet. Apologies if my comment is not pertinent.

  6. Post modified, apologies to Blondie.

  7. ...

    Section 2. General exchange arrangements

    (b) Under an international monetary system of the kind prevailing on January 1, 1976, exchange arrangements may include (i) the maintenance by a member of a value for its currency in terms of the special drawing right or another denominator, other than gold, selected by the member, or (ii) cooperative arrangements by which members maintain the value of their currencies in relation to the value of the currency or currencies of other members, or (iii) other exchange arrangements of a member’s choice.

    Don't look at my loong, golden legs - they are so borrrring!

    FOFOA: It is our obsessive compulsion to centrally control the price mechanism that sterilizes the vital signals that would otherwise be transmitted to billions of individual market participants keeping the monetary and physical planes connected.

    Wise words, mate.

  8. Blondie: "The IMF exists in the nominal rather than the real world."
    -well, it is still the most powerfull organization (except BIS) with biggest gold hoard and neglect-able expenses. :o)