Digital Gold: A Reason to Return to the Gold Standard
Thomas Coughlin, CEO of Kinesis Money, discusses how digitising gold on the blockchain can revolutionise financial services.
The tumultuous backdrop of volatile financial markets has seen commodities such as precious metals steal the limelight recently – particularly gold. According to a recent report by the World Gold Council, Central bank demand for gold was 651.5t in 2018, up 74% compared with 374.8t in 2017, hitting a recording-breaking half-century high of gold bought by central banks, the largest increase since the US’s decision to end the dollar’s peg to bullion in 1971.
This renewed interest in gold is due to the perfect storm of political tensions, trade wars, global debt and economic downturn, fuelling the need for institutions to diversify their investment portfolios. Countries across the world are turning their backs on the US Dollar as a reliable means of reserve, exemplified by the Russian central bank which sold almost all of its US Dollars to buy 274.3 tons of gold in 2018.
Following its annual report, the Director of Investment Research at the World Gold Council has announced central banks’ appetite for gold is here to stay. These official purchases are expected to provide a stable base for the gold market long-term, but how can the full commercial potential of the booming gold industry be unlocked? The answer is simple – blockchain technology.
Digitising gold on the blockchain could hold the answer – providing a stable currency through a safe haven asset.
Christine Lagarde, the head of the IMF, declared late last year that all central banks should consider issuing their own digital currencies, cementing blockchain as a financial services mainstay. However, two IMF economists recently explored how this digital currency could be used by central banks to stimulate economic growth and counter a possible recession by implementing as negative an interest rate as necessary. So, the question arises whether blockchain-based currencies can truly serve consumers.
Digitising gold on the blockchain could hold the answer – providing a stable currency through a safe haven asset. This evolutionary system would need to be backed by real assets of gold and silver, providing a 1:1 allocation to physical bullion. The gold industry must adapt to join the fast-paced digital world to stay relevant today. A digital currency pegged to gold is the most suitable way to usher in a new era of stability to financial markets.
Although previous digital gold currencies have failed in the past, the latest innovations in blockchain technology provide a trustworthy way to record transactions and ownership of gold, whilst permitting fast international transactions at low rates. This platform will allow the seamless everyday spending, management, and retrieval of these gold and silver-based currencies by using a physical debit card leveraging the global networks such as Visa. The transaction fees accumulated whenever the currencies are sent, spent or traded are proportionately redistributed as a velocity-based yield, incentivising use. Renewed interest in gold, distrust in the banking system, combined with the shift to convenient, agile online-only banking has set the perfect scene for digital gold to flourish.
This platform will allow the seamless everyday spending, management, and retrieval of these gold and silver-based currencies by using a physical debit card leveraging the global networks such as Visa.
A precedent in the FinTech scene has been established; providing the stable, trustworthy financial platform consumers are looking for. The use of advanced blockchain technology is bringing accessibility to gold trading and shows how old world investment and new world technology can work together to create a new stable currency. Significant technical developments have already been completed, and this year will see a new monetary system flourish that will change the way people see and use gold. With gold at a 50 year high, there has never been a better time to invest in this bank-free monetary revolution and return to the gold standard.