Chapter

Transactions in Gold at Premium Prices

Author(s):
International Monetary Fund
Published Date:
February 1996
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In May 1947 the Board set up a Committee on External Sales of Gold, charged with examining the legal and economic questions raised by member countries seeking to sell gold abroad at prices above parity. Following the committee’s report, the Board communicated the following statement to all members on June 18, 1947.

Statement Communicated to All Members

(June 18, 1947)

The International Monetary Fund has given consideration to the international gold transactions at prices substantially above monetary parity which have been taking place in various areas of the world. Because of the importance of this matter the Fund has prepared this statement of its views.

A primary purpose of the Fund is world exchange stability and it is the considered opinion of the Fund that exchange stability may be undermined by continued and increasing external purchases and sales of gold at prices which directly or indirectly produce exchange transactions at depreciated rates. From information at its disposal, the Fund believes that unless discouraged this practice is likely to become extensive, which would fundamentally disturb the exchange relationships among the members of the Fund. Moreover, these transactions involve a loss to monetary reserves, since much of the gold goes into private hoards rather than into central holdings. For these reasons, the Fund strongly deprecates international transactions in gold at premium prices and recommends that all of its members take effective action to prevent such transactions in gold with other countries or with the nationals of other countries.

It is realized that some of these transactions are being conducted by or through non-member countries or their nationals. The Fund recommends that members make any representations which, in their judgment, are warranted by the circumstances to the governments of non-member countries to join with them in eliminating this source of exchange instability.

The Fund has not overlooked the problems arising in connection with domestic transactions in gold at prices above parity. The conclusion was reached that the Fund would not object at this time to such transactions unless they have the effect of establishing new rates of exchange or undermining existing rates of other members, or unless they result in a significant weakening of the international financial position of a member which might affect its utilization of the Fund’s resources.

The Fund has requested its members to take action as promptly as possible to put into effect the recommendations contained in this statement.

[For the final decision of the Executive Board on the subject of premium gold transactions, see Decision No. 75-(705) on page 225 above.]

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