Germany's Bundesbank has come down against Gordon Brown's debt relief plans. The Bundesbank joined the United States in opposing gold sales by the International Monetary Fund to fund debt relief for poor countries.
Germany's central bank said it was opposed to any sale or revaluation of the IMF's 103.4 million ounces of gold reserves, valued on its books at about $9bn (£4.8bn) but worth about $44bn at current prices. It said in an internal document: "We have always indicated the IMF is not a development organisation and that its general reserves, which come from central bank stocks, should not be used for development aid."
The Bundesbank, led by Axel Weber, is now at odds with the German government over the issue. Hans Eichel, the Finance minister, has indicated that he supports the British proposal to use the gold stocks to cancel debts of the poorest countries amounting to about $28bn, which they owe primarily to the IMF and the World Bank.
The UK Treasury reacted to the Bundesbank's comments by saying: "Holding over $40bn of gold is not an optimal asset allocation for the IMF. Just as central banks have been diversifying their portfolios through gold sales over the past years, so the fund should be doing the same. This will release resources for funding deeper debt relief without adversely affecting the gold market."
The IMF says it could sell 13 million to 16 million ounces of gold - up to 16 per cent of reserves and raising up to $7bn - without disrupting the market.
Finance ministers from the G7 nations have asked Rodrigo Rato, the IMF's managing director, to report on Mr Brown's proposal this month.
The US, as the IMF's largest shareholder, can block the plan, which needs an 85 per cent majority on the IMF board. The Bush administration has said it does not favour gold sales.
The European Central Bank sold 47 tonnes of gold last week, its first gold sale.