Gordon Brown Proposes Revaluation of IMF Gold Reserves to Fund Third World

Third World Debt Reduction

Brown wants debts that cost the world's poorest nations -- mostly African -- $39 billion a year wiped out and is pushing for more even-handed trade rules and new long-term aid.

One of the ideas floated by Brown is revaluing part of the International Monetary Fund's gold reserves to finance debt write-offs for 27 of the world's poorest countries.

According to Reuters:-

Golden Key to Unlock Third World Debt on G7 Agenda
By Veronica Brown 

LONDON, Feb 3 (Reuters) - A plan that seems to spin money out of thin air to pay poor countries' debts by revaluing IMF gold reserves is gathering steam ahead of this weekend's G-7 meeting of the world's richest nations, analysts said. 
"This (proposal) has a lot of moral momentum going for it at present. Standing in the way of this is not going to be very popular," Barclays Capital precious metals analyst Kamal Naqvi said. 
Under the proposal, backed by Britain's Chancellor (finance minister) Gordon Brown, reserves of the International Monetary Fund, the world's third biggest holder of gold bullion with more than 100 million ounces, would be revalued to levels achieved in the recent boom market in gold and other precious metals. 
With current spot gold prices at about $415 an ounce, the value of some 90 million ounces of the IMF reserve, pegged at just above $40 an ounce under a 1971 agreement, would soar tenfold. 
As part of a larger debt relief plan, that huge increase in value would be set against the hundreds of millions of dollars impoverished countries owe to the IMF. 
Talk of the plan has overhung bullion markets this week. 
"We believe that there could be more statements of support for the UK's plan, which proposes using IMF gold to fund poor country debt relief, from other G7 members ahead of, at or even after the G7 meeting in London this weekend," UBS Investment Bank analyst John Reade said in a daily report. 

REVALUATION OR SALES? 

The G7, which includes the world's richest countries, is split over how a move to write-off poor nations' debt should be financed. 
The United States sees the World Bank, to which poor countries also owe huge sums, funding its own debt relief with grants. 
Any proposal to revalue or sell IMF gold would need 85 percent majority of total voting power, giving the U.S. a strong hand as it holds more than 17 percent voting power. 
HSBC metals analyst Alan Williamson said that revaluation could be the easiest path to take. 
"It would enable the IMF to create extra revenue without disrupting the gold market or the revenues that a lot of the developing countries get from their gold sales," he said. 
Between December 1999 and April 2000, the IMF conducted separate but closely linked gold revaluation transactions with Brazil and Mexico, which did not release the IMF's gold holdings on to the open market. A spokeswoman from the industry-backed World Gold Council said it was aware of Brown's proposal, but would need full details before being able to assess the potential impact on the gold market. 
Naqvi, of Barclays, said sale instead of revaluation was quite possible, and would be a negative factor for the market. 
"Revaluation means little impact on the market and given that this issue has been hanging over it in recent weeks -- it could be price-supportive," he said. 
"You had the South African mining minister saying quite clearly that sales are possible -- that's a pretty strong suggestion that sales are much more possible this time round." 

According to Bloomberg:-

IMF Gold

The IMF held 3,217 metric tons of gold as of January, according to the World Gold Council, worth more than $43 billion at current market prices. The bank keeps the value at the 1971 price of less than $41 an ounce in its accounts.
``It is not clear that any gold would actually be sold'' under the proposal, N.M. Rothschild and Sons Ltd. said in a report e-mailed from Sydney today. ``It appears that the proposal is to revalue the IMF's'' gold reserves to the current market level, ``thus creating a paper gain.'' 
Also, a sale would require an 85 percent vote in favor from the 184 countries, which are members of the IMF, according to its Web's site. Moreover, 17 percent of these voting rights rest with the U.S., which would need approval from Congress. 
``We doubt that the necessary 85 percent of votes will be achieved to authorize this action, when the alternative, revaluation, is eminently sensible,'' John Reade, an analyst at UBS AG in London, said in an e-mailed report. ``But in the next few days we expect more talk on this issue to keep gold on the back foot.'' 
As a result, Reade cut his gold forecast from $440 an ounce in a month, to $410. He still expects the metal to rise back to $440 within three months, ``when we hope that common sense will have prevailed,'' he said. 

US Opposition

It seems that the USA is opposed to the scheme, and as it holds 17% of the voting power, and 85% is required, it seems unlikely to ever come to fruition.

Has Gordon Brown Created a Good Gold Buying Opportunity?

RBC Commodities quoted on The Bullion Desk (www.thebulliondesk.com) 4th February 2005

Gordon Brown & Gold

Gordon Brown was criticised by the World Gold Council and many others in 2002 for auctioning some of the Treasury's gold reserves via the Bank of England, at the bottom of the market, possibly causing the low prices, which promptly recovered when the sales programme was completed.

See Bank of England Gold Auctions.