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How the IMF forbids the use of Gold as Currency

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The voices calling for a return to the gold standard were getting louder in 2016, but how many of us knew that the IMF expressly forbids the use of gold as a currency or exchange mechansim or as a denominator for settling monetary transactions?

Article IV, Section 2b [General exchange arrangements] of the Fund’s Articles of Agreement states;

(b) Under an international monetary system of the kind prevailing on January 1, 1976, exchange
arrangements may include (i) the maintenance by a member of a value for its currency in terms of the special drawing right or another denominator, other than gold, selected by the member, or (ii) cooperative arrangements by which members maintain the value of their currencies in relation to the value of the currency or currencies of other members, or (iii) other exchange arrangements of a member’s choice.

Section 12. Other operations and transactions
(a) The Fund shall be guided in all its policies and decisions under this Section by the objectives set forth in Article VIII, Section 7 and by the objective of avoiding the management of the price, or the establishment of a fixed price, in the gold market.

The only type of exchange arrangement that is specifically precluded under Article IV, Section 2 is one that relies on gold as the denominator. This prohibition reflects a principal objective of the Second Amendment, which was to reduce the role of gold in the international monetary system.

See the letter by Ron Paul to Alan Greenspan and the then Treasury Secretary O’Neill.

Why Does the IMF Prohibit Gold-Backed Currency for its Member States?

Congressman Ron Paul sent this letter to both the Treasury and the Federal Reserve Bank in April, 2008.  Neither has responded.

Dear Sirs:

I am writing regarding Article 4, Section 2b of the International Monetary Fund (IMF)’s Articles of Agreement. As you may be aware, this language prohibits countries who are members of the IMF from linking their currency to gold. Thus, the IMF is forbidding countries suffering from an erratic monetary policy from adopting the most effective means of stabilizing their currency. This policy could delay a country’s recovery from an economic crisis and retard economic growth, thus furthering economic and political instability.

I would greatly appreciate an explanation from both the Treasury and the Federal Reserve of the reasons the United States has continued to acquiesce in this misguided policy. Please contact Mr. Norman Singleton, my legislative director, if you require any further information regarding this request. Thank you for your cooperation in this matter.

Ron Paul
U.S. House of Representatives


Sources:

  • http://www.24hgold.com/english/contributor.aspx?contributor=Ron+Paul&article=1192339902G10020
  • https://www.imf.org/external/pubs/ft/aa/
  • https://www.imf.org/external/np/pp/eng/2006/062806.pdf
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