Greenspan says other central banks attack gold, not his


11:30a EST Sunday, January 23, 2000

Dear Friend of GATA and Gold:

There's new commentary from Reginald H. Howe,
Harvard-trianed lawyer and former mining company
executive, posted at his web site,

Reg observes that the International Monetary Fund,
which is in the middle of providing debt relief to poor
countries by revaluing its gold supply upward and
engaging in some paper transactions that leave the
gold in the same vaults, could provide a lot more debt
relief by revaluing gold higher still.

Reg speculates that the IMF now may be joining the
European central banks in helping restore gold to its
rightful place in international monetary affairs.

For simplicity I've removed some footnote material,
but you can find all that at:

Please post this as seems useful.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

IMF's Off-Market Gold Sales: Toward the New Order?

By Reginald H. Howe
January 22, 2000

Speaking this week in Gabon, Michel Camdessus, the
retiring managing director of the International
Monetary Fund, revealed that the Fund has "almost
tripled the resources of gold" that it is prepared to
use in support of its plan to lower the debt burden of
poor countries

Originally the IMF, with the support of Britain and the
United States but not that of several European
countries, particularly Germany, proposed to sell some
of its gold reserves to finance its so-called Heavily
Indebted Poor Countries (HIPC) and Enhanced Structural
Adjustment Facility (ESAF) initiatives. The income from
investment of the proceeds of these sales was to be
applied to fund these initiatives. However, given the
relatively small amount of income likely to be
generated, there were suspicions in many quarters that
the scheme had an important ulterior purpose: namely,
to help balance the growing gap between annual gold
demand -- in excess of 4,000 metric tonnes -- and new
mine production -- around 2,500 tonnes. Gold bugs, of
course, smelled manipulation aimed at capping the gold

The weak gold prices that followed in the wake of the
Bank of England's May 1999 announcement of its own gold
sales program galvanized additional strong opposition
to the IMF's original plan, which also required
approval of the U.S. Congress. As a result, the IMF
advanced and secured approval of an alternate plan to
fund its HIPC-ESAF initiative. This plan replaced the
proposed gold sales with certain off-market
transactions in gold.

These transactions, which involve settlement of certain
obligations coming due to the IMF by member countries,
operate as follows. First, the IMF sells gold to the
member at the current market price, placing the profits
from the sale in a special account to be invested for
the benefit of the HIPC-ESAF initiative. The profits
are the difference between the IMF's book carrying
value of the gold (i.e., 1 ounce = 35 SDRs, or
approximately US$ 48) and its market value. Second, the
member purchasing the gold then satisfies its
obligation to the IMF by returning the gold at the same
market price. Accordingly, the amount of gold involved
in any single transaction will be that amount which at
the current market price equals the member's
obligation. The IMF explains further:

"The net effect of these transactions will be to leave
the IMF's holdings of physical gold unchanged. No gold
will be released to the market, and thus there will be
no impact on the supply and demand balance in the
market. The IMF's gold holdings accepted in settlement
of members' obligations ... will be recorded at a
higher value in the IMF's balance sheet, and acceptance
of this gold (instead of currencies or SDRs) in such
settlements will reduce the IMF's liquidity, by the
amount of profits transferred for the benefit of the
HIPC and ESAF initiatives ... , and its net income."

According to the IMF, the original plan called for
transactions involving in total 14 million ounces
(about 435 tonnes) of gold. Taking Camdessus at his
word, it appears that now more than 40 million ounces
are committed to the plan. The IMF's total gold stock
exceeds 103 million ounces (3200 tonnes), making it one
of the largest official gold holders in the world. More
information on its gold holdings and policies with
respect thereto can be found at:

Subject to approval by an 85 percent majority vote, the
IMF can sell gold at market prices and accept gold in
settlement of members' obligations at agreed prices
based on market prices. It cannot buy gold or engage in
any other transactions in gold (e.g., loans, leases,
swaps, etc.), nor can it use its gold as collateral for

The IMF's second off-market gold sale, involving just
over 655,000 ounces, was completed with Mexico on
December 17, 1999. The IMF press release says:

"The IMF retained about SDR 23 million on its own
account as required by the Articles of Agreement. The
remainder of the proceeds -- SDR 111 million (about
US$ 152 million) -- was invested with the Bank for
International Settlements to generate income for the
Heavily Indebted Poor Countries (HIPC) initiative."

The term SDR refers to the IMF Special Drawing Right,
which is essentially an accounting convention of the
Fund. The SDR is a weighted composite of the currencies
of the U.S., Britain, France, Germany, and Japan, which
today means the dollar, euro, pound and yen. Its value
is determined daily by the IMF on the basis of market
rates for its components. The SDR interest rate is
adjusted weekly on the basis of certain domestic short
term rates in the five specified countries. SDRs can be
used in transactions among the Fund, its members and 15
other "prescribed" institutional holders, presumably
including the BIS. However, while the IMF can create
international liquidity by allocating SDRs to its
members, it cannot allocate SDRs to itself or
prescribed holders.

In essence, the IMF's off-market gold sales are a
mechanism for creating SDRs for the IMF itself by
revaluing a certain portion of its gold from SDR
$35/oz. to current market prices expressed in SDRs.
These new SDRs are apparently being placed with the
Bank for International Settlements, a prescribed
holder, because IMF rules prohibit its Special
Disbursement Account, which includes the HIPC-ESAF
initiative, and other accounts administered by it from
holding SDRs directly.

Although I have read speculation that some IMF gold may
be reaching the market through its off-market gold
sales, I am unable to come up with any plausible
scenario as to how this might happen. On the other
hand, the apparent success of the IMF's program may
have favorable longer-range implications for gold.

Certainly until all its gold is revalued from SDR
35/oz. to market prices, the argument for outright gold
sales by the IMF will be difficult to make. Indeed, if
ever there was a situation of eating one's cake and
having it too, these current off-market gold sales
would seem to be it. Of course, once all the IMF's gold
is revalued to market prices, only further increases in
the gold price itself will support creation of
additional SDRs in this manner for the IMF's own use.

A good argument can be made that the European Monetary
Union's ultimate vision is not a euro fixed to gold but
a euro regularly measured against gold at market
prices. Under a system of this sort, the euro could
serve as the domestic currency of the EMU countries
without the rigidities of the classical gold standard.
It could also serve as a major currency, possibly the
dominant currency, for settlement of private
international transactions and for international
finance. But gold would resume its role as the
international standard of value -- the yardstick for
all currencies. It would also become the principal
component of most nation's international monetary
reserves and, at market prices, the standard medium for
settlement among national governments (i.e., central
banks) and international monetary authorities. The days
of one nation's paper currency serving as the world's
principal international monetary reserve would be over.

The beginnings of a system of this sort can already be
glimpsed in both the EMU's practice of marking its gold
reserves to market quarterly and the Washington
Agreement affirming that gold will remain an important
part of the Euro area's international monetary
reserves. Although starting with a proposal for gold
sales much like the Bank of England's, the IMF ended
with a system of off-market gold sales involving
settlement of international obligations in gold at
current market prices. In hindsight, this IMF program
well could be perceived as another step, however small,
toward restoring gold to a major role in the
international payments system.

In any event, by dropping the fiction of gold at SDR
$35/oz. and embracing market prices, the IMF has
aligned itself with the EMU as an official-sector
institution in which the market price for gold has a
significant and current balance sheet impact. In the
long run, institutions operating in this manner are
likely to find that it is more in their interest to
have an honest, free-market price for physical gold
than an unrealistic price subject to manipulation in
largely paper markets such as the COMEX, TOCOM, and

Increasingly these large official holders of gold
should come to realize that rising gold prices are not
always a harbinger of rising prices or proof of bad
monetary management. Instead, they can be at times an
indicator of rising general productivity relative to
gold, and in that context an opportunity for a
fundamentally benign upward revaluation of existing
gold stocks in accordance with market dictates and to
the benefit of gold holders.

Put another way, if the IMF can do a lot for poor
countries with a gold price near $300/oz., it could do
twice as much with a gold price near $600/oz. That is
the price that even today many knowledgeable gold
analysts suggest may be necessary to bring physical
gold demand and new mine production back into

Why, then, should the IMF fight it? Indeed, why should
any large official holder of gold, except of course the
United States, which now enjoys "the exorbitant
privilege" of printing its way out of its international