The United States and other leading members of the International Monetary Fund are seriously discussing using a portion of gold owned by the fund to backstop a proposed "substitution account" in the IMF.
That was revealed yesterday by Treasury Under Secretary for Monetary Affairs Anthony Solomon in a question and answer session following his testimony before a House Banking Committee subcommittee on international economic issues.
The substitution account is a proposal by which central banks holding excess amounts of dollars could deposit them in the IMF in exchange for a new asset denomination in a basket of currencies.
In general, the idea behind the account is that by preventing such amounts of dollars from coming on the foreign exchange markets, the international value of the dollar could be stabilized. In turn, the new asset, a form of the IMF's existing special drawing rights, would play an increasingly important role as a reserve currency, easing the burden on the dollar.
Solomon made clear that no decision has been made on how much IMF gold to bring into the account, or at what price -- but emphasized later that "we don't want to put a monetary price on gold." It might even be listed as a "footnote" without a specific value.
The function of the gold would be to add to the value of the account if over a period of time the value of the dollar were to decline. Such a short-fall in the account, according to the U.S. view, would pose a common problem, and not one that the U.S. should be called on to make up by itself.
It was leaned that various countries have suggested the use of gold as a way to make the substitution account more attractive. But some third world countries that believe the Substitution Account would be more useful to the rich nations than to the poor ones appear to have reservations about using the IMF's gold -- deposited by all nations -- for this purpose.
Solomon also told reporters to reach $50 billion at the end of an initial three-year period, might be started off at anywhere within a $10 billion to $20 billion range.