Gold and Currency Reserves

the stocks of gold bullion and coins belonging to treasuries and central banks, foreign currencies in bank accounts abroad, and foreign bank notes and coins. The member countries of the International Monetary Fund (IMF) also include within the total of their own gold and currency reserves the free remainder of the sum of foreign currency which they enjoy the unconditional right to demand and obtain from the fund. The total amount of this IMF limit is determined by the size of the country’s gold contribution to the fund’s capital in its own quota account and in addition, since early 1970, by the sum established for the country according to its participation in the special currency drawing rights in the fund.

Gold and currency reserves fulfill basically the function of a reserve fund of international payment capital and are used when necessary to cover a balance of payments deficit and also to intervene on the currency market in order to maintain a country’s national currency rate of exchange. The gold and currency reserves of a country are not constant. The optimum level is one that ensures international liquidity, that is, the ability of a country to make payments due other countries in good time and without interruptions. The depletion of a country’s gold and currency reserves indicates an unfavorable currency position. The relative reduction in the total gold and currency reserves of the countries of the capitalist world in relation to the total value of their imports (the principal items for which reserves are used) characterizes to a certain extent the state of international liquidity. According to data released by the IMF, the liquidity situation has continuously worsened during the postwar years (see Table 1).

The sharp reduction in the level of international liquidity is due mainly to an insufficient flow of gold. This is associated with the unprofitableness of mining gold in a number of countries at the low official price of $38 ($35 dollars up until March 1972) per troy ounce and the buying up by industrialists, hoarders, and speculators of newly mined gold and even of some of the gold from centralized reserves. As a result, the overall gold reserves of the capitalist countries, which had risen to $42.0 billion by the end of 1965, dropped to $36.2 billion by the end of September 1971. The insufficient growth of gold and currency reserves and the danger of further reductions in international liquidity forced the members of the IMF (under pressure from the USA) to create artificial international reserve capital in the form of special currency drawing rights in the IMF; these special drawing rights have no independent value or real backing and are intended to regulate the net sums of the balances of payment and of accounts with the IMF. The total gold and currency reserves are distributed extremely irregularly among the capitalist countries. In September 1971, West Germany’s share was 14 percent; Japan’s, 11 percent; the USA’s, 10 percent; Italy’s, France’s, and Switzerland’s, 6 percent each; and Great Britain’s and Canada’s, 4 percent each, with all other countries having a total of 39 percent. The share of gold in the countries’ reserves also fluctuates sharply, depending on how much their governments yield to the pressure of the USA not to present dollars in exchange for gold. In September 1971 the share of gold in the gold and currency reserves was 48 percent in France, 44 percent in Switzerland, 43 percent in Italy, 24 percent in West Germany, 16 percent in Great Britain, 16 percent in Canada, and 5 percent in Japan.

In the USSR and other socialist countries, gold and currency reserves are a part of the national economic reserves, accumulated and used under a planned system in accord with the interests of building socialism and communism and improving the well-being of the peoples of these countries.