By Paul Burton
15 November 2003
World Gold: GoldMoney is a relatively new concept. Just explain the philosophy behind it, and how it differs from the traditional approach to currency.
GoldMoney: The conceptual idea behind GoldMoney is really quite simple. There are basically two schools of thought in the gold industry about gold bars. One school of thought is that you take the gold out of the ground, fabricate it into a bar, and it then has a negative cashflow because you have insurance, storage and everything else associated with its handling and ongoing storage.
Then there is the new school of thought that GoldMoney is all about. You take that gold bar and instead of having a negative cashflow, you turn it into a positive cashflow. The way you do that is by giving that bar of gold some utility that people find helpful. In return for that utility, they pay a fee to you, and the cost of insurance and storage just becomes a cost of doing business that offsets some of the revenue.
So we are actually doing things completely differently to the way the industry generally views things. We are giving that bar of gold utility by enabling it to circulate as currency in an online environment and to do things with our currency that you cannot do with existing national currencies.
It's a non-repudiable payment. In other words, once you are paid 24/7 anywhere in the world, you stay paid.
Under the old clearing and settlement system, all the national currencies have to go through an antiquated process once a day. They clear all the cheques and bring everything together, and that's true whether you are working offline or online.
But we avoid all of that by being outside of that system. I like to explain it by saying that there are a lot of national currencies out there, but GoldMoney is the only non-national currency.
World Gold: How is this non-national currency aspect important?
GoldMoney: The non-national currency aspect basically restores gold to its rightful place in the centre of the international monetary system. Because, after all, gold's historical traditional role is as an international form of money. It stopped circulating as currency because it was more useful at a time to have money substitutes circulating in place of the money itself. In other words, paper, cheques and things like that instead of actual gold and silver coin.
What we find now is that the demands for international global commerce being such, money substitutes cannot work in an online environment. But gold works well in cross-border commerce, which is its traditional role. In GoldMoney what we are trying to do is focus on this global, on-line, cross-border commerce. Adding efficiency, giving utility to that bar of gold. So far it's working very well, and we are having a record quarter in terms of new accounts, transactions and new gold coming into the system.
World Gold: What sort of people are using the system?
GoldMoney: Interestingly, we have over 8,000 customers now in 102 different countries worldwide. It ranges from individuals to companies, but we are finding that people who have a lot of international money transfers find GoldMoney to be very advantageous. If you have ever spent US$50 for a bank wire transfer to send, say US$2500 from New York to Hong Kong, and then the money gets lost, you have to wait and check all the bureaucracy that is associated with it. If the wire goes well you get it three days later, if it goes poorly it can take three weeks.
With GoldMoney you can transfer the value in gold of $2500 at the spot price instantaneously. While you are on the phone and the guy in Hong Kong is on the phone, he can watch the payment actually appear on the computer screen and know that it's money good. And the maximum fee is approximately a dollar.
From a technology point of view, it's an order of magnitude better than anything in the existing systems and that's the interesting thing about GoldMoney. It's clearly a gold story, but it's also a technology story. The way it's a technology story is that we are bringing efficiencies to currency that have never been seen before by using the communications and computers that are available today.
If you look at the history of money, it's really the history of currency, making money circulate more and more efficiently in current form because if you can lower the costs of doing transactions you improve commerce and that's essentially what currency is all about.
We believe that GoldMoney is the next evolution in currency. It's enabling gold to circulate once again and do it in a very advanced technological way. Instead of passing a gold coin across the table hand-to-hand, which was the 19th century currency for gold, it's now digital gold currency where you can actually tap in the money with your hand-held computer and see when you receive with your computer or get an email message on your cell phone that you have just received X amount of gold transferred into your account. That's the future of money.
World Gold: So at the moment both parties have to subscribe to the GoldMoney service.
GoldMoney: Essentially that's correct.
World Gold: Do they set up an account?
GoldMoney: Yes, they just set up an account. It's like opening a bank account. All of our servers and all of our customer dealings are in Jersey in the British Channel Islands. We chose Jersey because it's an ideal location to maintain a non-national currency, because it's politically neutral, is a major international financial centre, and has a great infrastructure.
What you do is open an account online and then you are able to begin transacting in GoldMoney. We have two levels - a small account where you can open an account with the documents to follow to comply with anti-money laundering legislation. If you intend to use your account more than US$600 per month, in terms of transactions, we have to identify you through an address etc. Once the account is up and running, you have complete access to the system.
If you are not an account holder and somebody is willing to accept GoldMoney, you can email them the money. He then takes that 'payment key' and opens an account with it and redeems the payment key. The gold is put into his account.
World Gold: We are now seeing some moves towards using gold-backed equities. How do you view this development?
GoldMoney: I think it is an important step for the gold industry. What's happened over the past century is that the broad mass of people don't understand what gold is. It is probably the most misunderstood asset class that there is out there. There are many misconceptions, but gold is money - it is a financial asset. The move towards securities is important because the more you can link gold into the existing infrastructure the better it will be for the gold industry, because it makes it easier for people to buy gold.
This is what we are finding in GoldMoney. As an example, we now offer the ability to let people go online in GoldMoney and purchase gold by having money directly debited out of their US checking account. We are going to do this in other countries as well. You don't have to leave your house, or call anybody - you just do it online. Money comes out of your account and you have gold.
We are finding that people are responding to that feature because we can add convenience by linking GoldMoney into the existing infrastructure. More people will go into gold not only because they understand that gold has advantages given the monetary debasement mode that the world seems to be in, but also if it is convenient to buy gold.
And that is exactly what the gold securities are doing - linking into the existing infrastructure. I think this is a major step forward. We are also working on a security type product where the underlying is not the actual physical bar of gold but the GoldMoney currency itself, of which the underlying is a bar of gold.
Another way to look at it is to compare the economic and monetary environment today with 1971. If this is so, and we have that kind potential of facing us, we need a product for gold that people are going to respond to.
The Krugerrand was the perfect product for the 1970s. It was a marketing success for the gold industry. There is no specific product out there right now that people can wrap their arms around. I think as a gold industry what we need to do is focus on what that product going to be, and I think there are a couple of answers to that. I think the security product is one thing, and for those people who want to own gold instead of the security, then GoldMoney's digital gold currency is the other answer. These products use 21st century technology, enabling people to own gold in allocated storage with online access.
World Gold: A couple of companies in Canada, Goldcorp and Iamgold are actually holding gold themselves and want to pay their dividends in gold.
GoldMoney: Their shareholders have been responding very positively to that. If you going to buy a gold mining stock, you want as much exposure to gold as you can, and what better way to do it than to have gold on the balance sheet. It's the exact opposite of hedging. Hedging has a negative impact on a gold company's balance sheet. Holding gold as liquidity has a positive impact, over and above the operations of the company itself.
Iamgold Corp made an investment in GoldMoney. They are a shareholder with the specific objective of trying to work out a way to enable them to pay dividends in gold to their shareholders. After doing a study, Iamgold concluded that GoldMoney was probably the best prospect for enabling that desire on the part of Iamgold and their shareholders to receive dividends in gold. So they have invested in GoldMoney and the money they have invested is being used specifically to develop a product that will enable them to pay dividends in gold. We hope to launch it in the not too distant future.
Once the first gold company starts paying its dividend in gold, we think that there is strong interest by other mining companies. A couple of mining companies have declared that in principle they like the idea of declaring dividends in gold, Goldcorp has indicated that and Durban Deep, although not paying dividends at the moment, has indicated that philosophically they would like to use gold.
World Gold: What's the timing on the new product?
GoldMoney: We are running a little bit slow because we are dealing with regulators, and we have come to them with something new. So they have to cover all the bases to make sure they fully understand.
World Gold: Which regulatory authorities?
GoldMoney: We are working with a fund administrator; the Toronto Stock Exchange and the Ontario Securities Commission. They are all involved as well as some of the big brokers and dealers indirectly through the TSX.
World Gold: Thank you.