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Contributions
to the I.M.F. Come with Conditions
While the B.R.I.C.S nations are contributing to the I.M.F.’s
funding with the purpose of shoring up the
global financial system, they’ve
stipulated that they want more power in the
I.M.F. China is contributing
$43 billion, so as it
races to become the world’s
leading economic and financial nation it wants a bigger part of the decision making process, commensurate with its rising
power. So the first question to be asked is, “Will it get it?”
The
emerging countries –China, Brazil, Mexico, India and Russia— announced
contributions to the IMF’s global firewall, nearly doubling the fund’s resources to $456
billion, at the G-20 summit
in Mexico this last weekend as global efforts to
restore confidence in the euro were discussed. The others will contribute $10 billion each and South Africa $2
billion.
I.M.F.
Structure of Power
The
International Monetary Fund
is subject to the will of the U.S. Some may have believed that it’s a truly Democratic institution where true consensus has to be reached on issues before the body can agree. This is not so. For any Resolution
to be passed, 85% of the members must be behind it.
The
U.S. has 16.75% of the votes at the I.M.F. So for
an 85% agreement to be reached,
the U.S. must agree. If they
don’t, the Resolution
will not be passed.
It’s true that if all the members of the
E.U. have around 25%+ of the votes, but this is irrelevant
if the U.S. opposes the Resolution. To emphasize the point –all the member’s
votes of the I.M.F. amount to 83.25% of the votes
and an 85% of votes must be achieved
to get a Resolution through.
This
reflects the Balance of Global Power going back to the last World War.
To most observers that may still
be the case in terms of
global financial power, but in the emerging nations, we don’t have supportive, subordinate economic powers. They walk their own
road. As economic power grows
in China and it finds
‘satellite’ nations becoming dependent on it, so it’s growing a substantial power
base, one that will have
to be recognized in
global financial institutions such
as the I.M. F.
Don’t expect the
U.S. to willingly hand over their
voting dominance, but to draw
off voting rights from other nations, if they wish to accommodate China in their demands. Indeed, until China and its
‘satellite’ nations are the dominant economic
power, we don’t see the U.S. budging on the
issue.
When,
If at All, Will This Change?
Right
now, the B.R.I.C.S. are setting up an alternative
to the World Bank, focused on their
interests alone. This appears to precede the full internationalization of the Yuan. China is acting away from the developed world on this. It does set a precedent we can expect China to follow in the future and on other
issues.
Once
it has established a economic power base rivaling that of the U.S. (not necessarily
the developed world in total) it
may well challenge the
U.S. at the I.M.F. or set up a developing
world equivalent, as it is doing with
the potential rival to the World Bank.
China,
as always, will be driven by its own interests,
solely.
Current
I.M.F. View of Gold
The IMF holds 2814.1 tonnes of gold
[90.5million ounces of gold] valued
at today’s market prices at over U.S. $165.44 billion. The I.M.F. values these at $4.9 billion in terms of their rules. The I.M.F. acquired its holdings from member states through the
original Articles of Agreement. The Articles were amended in 1978 eliminating the direct use of gold in the exchange rate
system. These holdings are after
the 403.3 tonnes were sold.
It currently holds
this view on gold:
“It is an undervalued asset held by the IMF, and provides a fundamental strength to its balance sheet. Gold holdings provide the
IMF with operational manoeuvrability both as regards
the use of its resources
and through adding credibility to its precautionary balances. In these
respects, the benefits of the IMF's
gold holdings are passed on to the membership at large, to both creditors and debtors. The IMF should
continue to hold a relatively
large amount of gold among
its assets, not only for prudential reasons, but also to meet unforeseen contingencies.”
Mobilization
of Gold
In
the last century, Mexico and Brazil
sold their gold to the
I.M.F. This totaled 403.3 tonnes and was sold over time, recently, both directly to individual central banks and in the open market under the auspices of the Central Bank Gold Agreement (after those signatories
to the Agreement had completed
their sales). At the time
of selling it to the
I.M.F. it was to allow them to get the full market price of their gold by paying them this
price directly. Thus the I.M.F. acquired gold
in its own name –not as part of member’s
holdings at the I.M.F.—enabling it to improve its own
funding and ongoing
finances.
But
the I.M.F. did not agree that this mobilized
gold in their hands. The initial purchase from Brazil and Mexico was called a “one-off” exception to their rules that
had effectively removed gold from the monetary system.
So
the current policy of the
I.M.F. is that gold is no longer freely traded between nations but simply held for the purposes stated above. There’s no visible
reason why the U.S. or other members would want to change this policy as it stands; however, in the case
where a member State needs support to continue trading
internationally, then on
the decision of the I.M.F. they
may get added support by way of loans or indirectly through the guarantee from the I.M.F. whose credibility is enhanced by the gold held by them.
Member’s
only:
Will China and the emerging
world want to change this
view?
How will
I.M.F., Chinese and other
nation’s Gold Reserves
be mobilized?
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