International Monetary Cooperation

By George N. Halm | Go to book overview

XI. THE ROLE OF GOLD

THE FUND AND GOLD

THE FUND USES GOLD for very important functions. Gold is the international unit of account since the par values of the member currencies are expressed in terms of gold. The member countries have to pay part of their subscription in gold and have, under certain conditions, to sell gold to the Fund for their local currencies. The members also agree to sell their local currencies to the Fund for gold. The Fund tends, whenever feasible, to change its local currency resources into gold in order to be able to buy with gold scarce currencies of surplus countries. Gold performs, therefore, the important function of maintaining the liquidity of the Fund's resources. The member countries are, of course, obliged not to buy or sell gold at a price which differs from the parity by more than a prescribed margin, a provision which introduces artificial gold points, prevents the circumvention of the Fund, and makes competitive exchange depreciation impossible.

But all this does not mean to say that gold standard and gold mechanism are to be reintroduced. The member countries are not obliged to adopt the gold standard though they are free to do so if they wish. To be on the gold standard means that the monetary authority of the country stands ready to buy and to sell gold at a fixed price in unlimited amounts and that it permits free import and export of gold. Owing to the unequal distribution of gold many countries could not go back to the gold standard even if they wanted to; and other countries which could go back may not desire to do so.

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