Sold gold reserves held in the IMF may realise frozen capital for economic development

The annual meetings of the World Bank Group and the International Monetary Fund hosted in Tokyo, October 9-14, once again engaged high level representatives from financial organizations and academic communities into the economic growth and financial stability issues. The events started with a brief presentation of the World Economic Outlook (WEO) which emphasised threats of high debts and sluggish economic growth mainly due to weaker demands in advanced economies. Similarly, the press briefing on Global Financial Stability Report (GFSR) highlighted actions restoring market confidence through monetary interventions and financial system reforms related to financial buffers, high-quality capital and sufficient liquidity in advanced economies as well as fiscal discipline in Europe, Japan and the United States. So are there particular circumstances those affect the future economic outlook?

Several events during the last and upcoming month have set more challenges and uncertainties regarding the future economic development. Slowing global economic growth and upcoming leadership changes encourage aggressive economic growth strategies and implementation of short term financial stability measures such as monetary easing measures to relieve credit crunch and market pressure. Approaching the US presidential elections in November 6 may change public debt management policies and measures for reduction of fiscal cliff, set new economy growth and employment programmes, and even affect monetary decisions. China’s slowing economic growth and territorial dispute with Japan, which may weaken economic cooperation between Asian countries, also coincide with the date of the 18th Party Congress on November 8, the date of formal unveiling of China’s new leaders and development policies. Moreover, despite of the measures prepared by European leaders to provide necessary financial support, Europe’s peripheral countries faces internal unrest due to exercised austerity measures, high unemployment and weak economic recovery.

Investment in gold products are seen as a save heaven in the environment of high uncertainties. So could growing gold prices create economic distortions? Expectations of investors that gold may rise to $2,000 an ounce could encourage investment in gold and may freeze capital for economic development.

Even the role of the gold has been reduced in the international monetary system, the IMF remains one of the largest official holders of gold in the world. According to the factsheet on Gold in the IMF published on 24 August, 2012, the IMF held 90.5 million ounces (2,814.1 metric tons) of gold at designated depositories at mid-August 2012. The IMF’s total gold holdings are valued on its balance sheet at SDR 3.2 billion (about $4.8 billion) on the basis of historical cost. As of August 17, 2012, the IMF's holdings amounted to $146.1 billion at current market prices. So, sold gold reserves held in the IMF at market prices could realize frozen capital for economic development.