EDITORIAL & OPINION — Gold sales would harm world’s poor — IMF folly

United States President Bill Clinton likes the idea, and so does Vice-President Al Gore. U.S Treasury Secretary Robert Rubin also favours the idea of encouraging the International Monetary Fund (IMF) to sell gold and help the world’s poorer nations.

Originally, the idea was to sell 5 million ounces in order to fund debt relief. However, in the past week, Rubin and other government officials have suggested doubling the amount of gold sold to 10 million ounces, ostensibly to accelerate the global do-good program.

Of course, this is not good news for the gold industry, which is already reeling from low prices and repeated rounds of central bank selling. But it’s also bad news for the world’s poor, many of whom still rely on gold as a storehouse of wealth, and bad news as well for the many developing nations that rely on gold mining to shore up their struggling economies.

Western do-gooders will no doubt scoff at the notion that selling gold will harm, rather than help, poor nations. But that’s because they haven’t considered what the ramifications will be for the millions of people who have seen their currency reduced to almost worthless paper, and who still put their trust in gold.

Rightly or wrongly, many of these people — and their governments — blame Western speculators for undermining their currencies. Even global financier George Soros, who has made millions playing this game himself, acknowledges that unfettered speculation has enriched the few at the expense of the many. The recent orgy of currency destruction has left many of the world’s citizens with only two choices in preserving what little wealth they have: gold or the mighty U.S. dollar.

The United States government has a vested interest in making its dollar the de facto currency of the world. It has been cranking up the printing presses of late and no doubt worries that, sooner or later, all that fiat money will come flooding home as the economies of weakened nations begin to improve. Most Asian peoples are fiercely nationalistic and will return to their own currencies once their economies have stabilized and recovery is on the horizon.

Nor are many U.S. government officials aware of how many nations depend on gold as an economic cornerstone, South Africa being one obvious example. Already, thousands of black workers have lost their jobs because of weak prices and the productivity improvements required to offset high production costs. Should official gold sales continue unabated in the next few years, many more thousands of jobs would be lost, thereby destabilizing a part of the world that still underpins the African economy.

Ghana, another economic cornerstone of Africa, is heavily dependent on gold production, as is Mali, which only recently got its first modern mines up and running. Peru is on the cusp of a gold mining boom that will bring much needed jobs and economic benefits to the impoverished nation.

On the consumer side, millions of Indians and Asians view gold as a storehouse of wealth. Repeated official gold sales will make them poorer, not richer. Russians, too, have little or no faith in their government’s printing presses and still look to gold as refuge from ongoing instability.

U.S. government officials will defend their decision by pointing out that 10 million ounces is a small fraction of the world’s annual production (now about 100 million ounces). However, central banks from Western nations have been on the sell side for a long time, and IMF sales will depress prices even further and prolong any chance of an industry recovery.

The policymakers in the IMF and the U.S. government should think twice before embarking on a course that may hurt, rather than help, those less fortunate than themselves.