IMF GOLD BONDS (SDR).

IMF- Paper Gold. (SDR)

IMF Gold Bonds and Euro Bonds are the two international currency

substitutes. These bonds are reserve assets created by IMF  and the EC

to supplement official foreign exchange reserves of member countries.

Its rate is based on the combined rate of US dollar. Euro, Yen and the Pound.

Most of the World Countries buy IMF Gold Bonds as a measure of their reserve

assets in the international monetary system. Such gold bonds supplement

their reserve of gold stock and the stock of US dollar,  to maintain stability in the

international market. It is a sort of neutral unit of account necessary in light of  

the rapid growth of world trade in the world market.

The IMF held that the supply of two principal reserve assets –gold, and US dollar

would fall short of demand, causing the value of US dollar to rise disproportionately,

in relation to other reserve assets. Such bonds can be sold when need arises; and

it sells like hotcakes. The country that holds maximum bonds makes the rules.

On 01-01-1970, at the time such gold bonds were introduced, the price of gold was

fixed at US $ 35 an ounce.  The IMF has 186 country members. IMF allocates

such bonds to the member countries on the basis of its proportional quota based on its

gross national product, in full faith of credit of its government and accept them in exchange of gold or US dollar.

Originally the value of the bond was fixed at one dollar, and as per the equivalent price of one dollar in respect of the currency of the world countries. As the world countries adopted this type of floating system, the value of such bonds fluctuated related to the value of the dollar.  Increasing reliance by the world countries of buying such gold

bonds resulted in decline of importance of gold as reserve asset.  Because of its

inherent equilibrium relative to the US dollar, such bonds are in use to denominate

or calculate the value of private contracts, international treaties and European securities.

Both China and India have opted on buying IMF paper gold bonds (SDR)  in an

attempt to relieve themselves of American dominance. It is just a beginning.

India and China have also bought IMF gold to boost their gold stock.

It appears that despite all such alternatives in vogue, wild craze about the US dollar

persists in other world countries than America itself. Dollar dictates the world –finance.