The Gold Economy

April 9, 2001 – When I was still a young boy I remember hearing someone say that science fiction sooner or later becomes science fact. I was too small at the time to appreciate what I had heard, but as I grew older I came to understand that what we humans can dream, we can also build.

I’ve seen this principle put to work many times in my life. For example, Captain Kirk’s communicator first seen in Star Trek in the 1960’s has a remarkable resemblance to many of today’s mobile phones. Perhaps more remarkable is something I learned from a recent television program on space travel. Anti-matter and ion propulsion systems for space craft are no longer farfetched science fiction, but are being seriously studied as a means to provide the energy needed for interplanetary travel.

While we probably won’t be ‘beaming up’ into orbiting space craft anytime soon, one never really knows what creative vision will be fulfilled and when. All we do know is that technology continues to move relentlessly forward, and that countless new advancements can be used in ways to bring about outcomes that only a few years ago were barely imaginable. Included among these advancements is the Internet, which has already created what I call the Gold Economy.

Like the so-called ‘parallel worlds’ of Star Trek, the Gold Economy exists side-by-side with the economic activity created by the use of dollars, francs, euros and all the other existing national currencies. But in this new Gold Economy, transactions are paid for in gold, not any national currency. In other words, economic activity is made possible because gold is being used as currency. And this economic activity is not science fiction.

Though still very small, the Gold Economy exists. It is real, and people are now using gold as currency in global ecommerce transactions made possible through the Internet.

You may ask, why use gold? What’s the matter with using dollars on the Internet? Well, there are two big problems with dollars, and for that matter, any national currency.

First, while the dollar works reasonably well in the real world, it does not work well at all in the virtual world of the Internet. To explain why, one has to look at the very nature of what a dollar is, and this can only be done by looking at some basic accounting.

The first thing one learns in accounting is that there are two sides to a balance sheet, with assets on the left side, while liabilities go on the right. National currencies, believe it or not, go on the right side of the balance sheet because they are the liability of some financial institution. In other words, while the dollars in your checking account are your asset, they are the bank’s liability, and it is herein where the problem lies. Not only are the dollar and the other national currencies bookkeeping money, to be more precise, they are liability currency. And liabilities always mean risk.

Regardless how you view any national currency, there is risk. What’s worse, this risk is unavoidable because every national currency is a liability.

The problems arising from this liability nature of national currency have to a large extent been worked around within a domestic economy. Payment systems have evolved with new technologies, like plastic cards and smart cards, to make this liability currency circulate more efficiently.

Indeed, the evolution of payment systems has been quite remarkable. But as good as the technology has become, cross-border trade remains very inefficient and costly. Moreover, new technologies can never change the basic fact that national currencies are liability currencies. And more to the point, liability currencies do not work well on the Internet. They do not circulate efficiently in ecommerce.

For example, though the communications capability of the Internet allows for instantaneous settlement of payments in the virtual world, the reality is that national currencies used in ecommerce still only settle once every 24 hours, just like they do in the real world. This is not because banks are only open from 9-to-5. Rather, it’s because liabilities provide funding for bank assets, and the movement of currencies from one bank to another creates a bookkeeping imbalance that needs to be funded. Remember, the right side of the balance sheet must always equal the left side of the balance sheet.

If one bank pays funds for its customer to another bank, dollars flow from the first bank to the second bank. This outflow of dollars leaves the first bank without all the liabilities needed to fund its assets. It must borrow the dollars it needs so that its assets and liabilities once again are in balance. In this way, banks ‘settle up’ with one another, but they do so for practical reasons only once a day. If a bank paid out more dollars than it received in the previous 24-hour period, it borrows the shortfall in the Federal Funds market to put its books back into balance. But one can easily see that instantaneous payment is not possible in this system. Banks would be borrowing/lending every second to settle their books, a sheer impossibility. And how is a bank supposed to pay interest on its Federal Funds borrowing if that borrowing only lasts minutes or seconds? In short, liabilities fund assets, which is one of many reasons that make liability currency ill-suited for ecommerce.

The second problem with the dollar and the other national currencies is that the Internet is global. There is no more logic to making dollars circulate in ecommerce then using francs, pounds, euros or any other currency. There is a very simple way to view this problem.

When you travel to a foreign country, one quickly learns that thinking in terms of dollars is a real limitation. You have to learn the local currency. You have to start thinking and performing economic calculation in terms of the local currency. Why should the Internet be any different? Why shouldn’t the Internet also have its own global currency? And if so, why shouldn’t this currency be purpose-built to take advantage of the 21st century technology that made possible the Internet in the first place? Here’s where gold has an important role to play. Gold has always been an international (i.e. non-national) money.

Though many of gold’s attributes have been ignored or perhaps even forgotten, it does not mean that they have disappeared. Those unique qualities that made gold become money in the first place remain. It’s just that though gold is money, it does not circulate as currency – until now that is.

Internet technology in general and GoldMoney in particular enable gold – in the form of GoldGrams, the unit of account of GoldMoney – to circulate as currency. And it is this use of GoldGrams which makes possible the new and growing Gold Economy.

GoldGrams are a custom-built for ecommerce currency that uses 21st century technology to complete instantaneous, non-repudiable payments. GoldGrams are not liability currency. They are an asset, just like a gold coin in your hand is an asset. And just like that gold coin can be used to make an instantaneous, non-repudiable payment, so too can GoldGrams. But GoldGrams are even better than that time-proven gold coin, because they can be used 24/7 to pay anyone anywhere in the world, day or night.

GoldGrams thus become very important. They make possible the Gold Economy, which will no doubt grow because GoldGrams are ideal for use in cross-border payments. They are also ideal for meeting the need on the Internet for global 24/7 instantaneous, non-repudiable payments.

Cross-border trade holds out the potential for significant growth, but that is also where the real (and costly) inefficiencies exist in present payment systems using national currencies. Cross-border trade is easy and efficient with GoldGrams.

As important as this contribution is to global commerce, GoldGrams are also important for another reason. They give people a choice. We are no longer completely reliant upon national currency, and the liability currency that it is.

With GoldGrams, we have an asset currency available for our use. We now have a choice, and the gift of choice is one of the real treasures of life.