BIS Newsletter - Implications of Low Interest Rates

The Bank for International Settlements publishes a newsletter featuring a variety of articles and studies available from them. The latest newsletter from BIS is pasted in below and features a study on the implications of long term low interest rates. BIS continues to say that there is the potential for long term low interest rates to "affect financial stability".

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August 2018 Implications of low interest rates  Prolonged low market interest rates could affect financial stability, the Committee on the Global Financial System finds. First G-SIB methodology review finalised The Basel Committee’s framework for identifying the systemic importance of global banks is working as intended. Principles for financial market infrastructures Jurisdictions are making progress towards implementing international standards for payment, clearing and settlement systems. Bond issuance continues to fuel global liquidity Dollar credit to non-bank borrowers outside the US rose to $11.5 trillion in Q1, driven by international bonds. US dollar and euro credit to non-residents continued to expand  Innovative technology in financial supervision (suptech) Financial sector supervisors are getting tech-savvy. This FSI Insights paper explores early experiences in using innovative technologies for supervision work. More BIS publications  BIS Working Paper: Gauging procyclicality and financial vulnerability in Asia through the BIS banking and financial statistics Can BIS data help to gauge financial vulnerability? BIS statistics sent warning signals ahead of the 1997 Asian financial crisis.  BIS Paper: Low for long or turning point? Papers from the 16th BIS Annual Conference feature research and discussions by central bank Governors, leading academics and former public officials. BCBS Working Paper: Survey on the interaction of regulatory instruments: results and analysis The Basel Committee publishes further results and analysis of a survey on how multiple regulatory instruments interact. ---------------------------------------------------------------------------------------- My added comments: One article above notes that non bank borrowing of US dollar denominated debt by foreign countries continued to climb higher up to $11. 5 trillion. The article also states: "The US dollar accounted for by far the largest share of outstanding foreign currency credit to non-bank borrowers in EMEs, at $3.7 trillion at end-March 2018, followed by the euro (€644 billion, or about $790 billion) and the yen (¥8 trillion, or $70 billion)." (see detailed report here) Two points to keep in mind: 1- as the US dollar index goes higher, paying off this debt in US dollars becomes harder for the borrowers and the risk of default rises 2- Please note that as of this report (March 2018) borrowing in US dollars is still far ahead of any other currency. They don't even mention the yuan in this paragraph

Robert Bell of KlickEx Comments on Monetary System Reform

Readers here know that we have featured New Zealand based KlickEx on the blog several times in the past. KlickEx is on the front lines of innovative technology for cross border payments systems and for technologies that can be used by central banks.

KlickEx Founder Robert Bell is recognized globally as an expert in payments technology and for creative ideas on how to promote financial inclusion in places where it is needed the most (such as the islands of the South Pacific). Robert has also been a great mentor, willing to share his knowledge and experience on the issues we cover here over the past few years.

Robert kindly agreed to do a Q&A style interview for readers here discussing his thoughts on the current status of monetary system reform and its potential for the future. He works with central banks and banks around the world, specializing in real time cross border payments that help promote financial inclusion. 

Last fall he announced a partnership with IBM and Stellar to implement what he described as the first institutional scale payments system to run on a blockchain platform (which we covered here). So he brings us an inside perspective on the latest information available regarding what is happening in Fintech and the potential for monetary system reform globally.

Robert Bell - KlickEx

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Q: After the 2008 financial crisis, many people felt that some kind of major reform to the existing US dollar based monetary system was close at hand. In fact, that was the very reason this blog was launched. Why do you think we have not seen any major reform to the global monetary system so far at this point in time?

A: Wow. This is a great question. I was one of the people who wanted to see the reform - very much - as I was inside banking at the time, and was more convinced than most, that banking as we knew it, wasn't as important as people inside the industry believed it was (as it stood then). 

In my opinion, at that time, central banks were sitting on their hands, believing in a set of financial theories that were very incomplete, and as a result,  what we saw was an utter embarrassment to the establishment. The bit I think was worst, was called the Capital Asset Pricing Model, and it had an extremely stupid assumption: That the market knows best. It allowed mathematical proofs to be built on this, and as we know, the market doesn't always know. It's the best we have, but it's almost never correct, otherwise it wouldn't change so much every day.

The danger of this is a complete lack of inherent responsibility to disclose what you know of what you sell. A lack of good faith. And CAPM eventually leads bankers to believe that something is of merit, if someone else will buy it, no matter how bad it is, no questions asked. And others buy things, because math tells them too. It's very dangerous. That led to what was primarily a greed and stupidity crisis. And it was potentially unbounded in scale. It wasn't really anything to do with the structural functioning of the system, but the human institutions that run it, in the back rooms, and the ethics involved on risk and honesty when things are bought and sold. 

When it all fell down, the people managing billions and trillions of dollars of assets allocation based on assumptions that profit alone, and worse still, short term profit, was the sole important measure of virtue, were at fault. A new system of any sort, doesn't change this. A Blockchain doesn't either. People will still find their way in - or worse - sell rubbish claiming to be gold. And that's the problem with "the system": People's desire to short change others as quickly and as comprehensively as they can get away with. And that's nothing to do with computer science.


Q: KlickEx has been at the forefront of Fintech innovation in payments systems as proven by your recent partnership with IBM and Stellar. Do you think that cross border payments system technology will eventually be adapted for use by central banks in reforming the overall monetary system?

A: Yes and no. The systems will be put in place, but it's unlikely that central banks will run it. The issues central banks face here are primarily around jurisdiction; and how to manage conflicts of interest between factions of a super-national governance body is a large body of work that has to be established and maintained. It's what happened in Europe with the  Sovereign Debt Crisis, and it's what happens when Bitcoin Exchanges fail. But countries cannot fail, we don't have that luxury in Developed Markets; else they'd be emerging markets...! 

So the systems end up being owned by banks and then become narrowly focused on providing tools to the biggest banks (SWIFT, CLS), excluding smaller ones. The ones owned by government (FedACH, SEPA) are slow and inefficient and end up ineptly serving the lowest common denominator. The ones in the NGO (non governmental organization) sector lack drive and are often berated by Bank and Government competitors, to the point where good initiatives get lost (e. g. Gates Foundation's MojaLoop) in the same way Government ones do. Exceptions are Visa and Master Card, and China Union Pay, vs American Express. 

To answer the second part of the question, the system isn't necessarily broken, it's just slow. The technology for real time payments has existed for a long time. The technology, like military technology, often takes a decade or more to test and prove and deploy - and can be 30 years old before it goes live, unless in wartime. Banking is similar - it's not about how fast you can go when the trajectory is upwards and exciting, but about how slowly you go downward when the trajectory is negative and terrifying.                                             (note: I added the underline for emphasis)

Q: Do you see a future for private blockchain based cryptocurrencies to evolve into a viable and sustainable alternative to the current monetary system?

A: The key there is cryptocurrency. Blockchain is just another database system, that is almost free to adopt, but increasingly expensive to maintain. We know, a bank will spend a billion dollars on a system that promises to be nearly free in the long term. Blockchain is the opposite. Which makes it perfect for startups. It's brilliantly free to copy, clone or fork, but try and make it run at a billion transactions per second for under a cent per instance, and it is a monumental failure on a scale that the world has never seen (compared to the claims made). It's just lucky that cryptocurrencies have no scale, otherwise the colossal impossibility would be a realised failure. 

The entire market cap of cryptocurrencies, is less than about an hour of what banks transact over morning coffee, day in and day out. Banks have capacity to process more than 10 Quadrillion transactions per year. Cryptocurrencies have so many flaws, that most people don't have the skills to acknowledge or even recognize that...

They just know it's cheap to start, and easy to raise money for it.  That's not to say it's all doom and gloom, but just like any technology, and just like the Blockchain solution we've seen in the Pacific, it's not really what technology is used, but who is using it that is most important. As you've seen with IBM, Stellar, and KlickEx, knowledge over enthusiasm will steer the direction of change in the monetary system going forward, I believe.


Q: Five years from now, do you think the global monetary system will look very different from what it is now or pretty much the same?

A: Very similar. Just faster. There will be less change than moving from Windows95 to Windows2000 - or from Skype to WhatsApp, for the younger generation. Or perhaps a similar difference between the special effects in Hollywood movies between the movies Terminator and Terminator 2. What will noticeably vary is what can be done on top of the existing infrastructure. 

Today's infrastructure is very efficient if you are a large bank. But those efficiencies don't filter down to people (end users). And people are getting a bit sick of being excluded from efficiency. This is our experience - and what we've been working on in the Pacific: taking the long-standing abilities of banks to price and trade foreign exchange, millions of times per second, at fractions of a percent per time, and sharing that with more people.

Q: What else would you like to say to our audience about the future of the global monetary system?

A: Have some faith. Be noisy with your frustrations. When we (KlickEx) started, banks would lobby with all their might, saying that nobody cared about real time payments - and that payments were risky (when the source of risk is actually the customer initiating the payments). 

They battled with all their hearts - because of colossal benefits to banks of status quo - but eventually fell to inevitable modernisation with the pressures of competition. The system is better now, than it's ever been. And it's still better than any alternative. However, everything can improve. It it's not free and instant, it can be improved. So watch this space!                                                                                          (note: I added the underline for emphasis)


Thank you for your time and willingness to share your knowledge and real world experience. I am struck by your comments about how much the current banking system likes the status quo and how long it takes new technology to be tested and deployed. This is very much in line with what we have been reporting here on this blog. Things tend to move slowly unless some kind of crisis (like war in your analogy to military technology above) speeds things up.

Before we finish up, I noticed that recently you announced the news that the KlickEx Foundation will be active in a number of interesting projects to improve lives and living conditions in the South Pacific. Could you share a bit of that news with us and your level of excitement about taking on this project?

A: Thanks for asking! We have done a huge amount of good work already, seeking to advance the interests of our communities though monetary technology and instrument innovation. They may not seem like overlapping spheres of influence - but we have learned that they really are. We've channeled more than a billion dollars of direct private aid into almost 70% of the households in our markets in the Pacific - and have been cited by the UN for lifting household income by over 20% of GDP per capita.

We have a huge range of additional programs going too, from nutritional programs that have become the highest rated TV Series in our market, to our ocean filters that promise to remove the equivalent of millions of plastic bags worth of micro-waste per week. We have robotic farming and renewable energy programs, combined with micro-nutrient organic agriculture and Industrial scale environmental carbon reclamation harvesting. All of these projects are funded from monetary services that are saving families millions of dollars per week in one of the most underpopulated, but ecologically significant regions in the world. So yes, we're not only talking about the work were doing in banking, where there is much more to be done, but also in the physical environments where our stakeholders live. It's a big challenge - but scale isn't something we've shied away from yet.

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My added comments: I really appreciate Robert taking time from a very busy schedule to share these thoughts with readers here. As you can see, Robert is a creative problem solver working in a sector that traditionally prefers the status quo and moves very slowly and cautiously towards any significant change. I found this comment about Robert on the KlickEx web site attributed to Jesse Lund of IBM who is partnered with Robert and KlickEx in the Pacific region (see what our clients say):

"In over two decades working in financial services, fintech, and technology, I have never encountered a more gifted financial professional than Rob. His ingenuity and creativity is rivaled only by his integrity"  ---------  Jesse Lund - Blockchain and Digital Currencies at IBM

I would second that statement. Having known Robert now for a few years and with lots of email exchanges over that time to discuss events and issues, I am struck by his incredible perseverance and desire to not only build a world class company, but to do what he can to make the world a better place along the way within his sphere of influence. We need more people in the private sector like this doing more things like this.

The KlickEx Foundation is the fulfillment of his deep desire to give back to the community in tangible and practical ways that really impact people's lives. I don't know very many people who would invest a considerable portion of their profits and give up significant personal time (while managing a very busy schedule) to attack a growing problem like the proliferation of plastic in the oceans. Everyone agrees this is genuine problem. Robert is doing what he does. He is not complaining about the problem or the causes of it, he is trying to help be a part of fixing the problem. 

I hope any readers here who have an interest in the problem of plastic buildup in the oceans or other projects that the KlickEx Foundation is tackling will visit their web site and take a look at the work being done. If you find the projects of interest, you might consider helping them out. Anyone can help with a donation (any size is appreciated) if you are able. 

You can also help out just by making others aware of the Foundation and it's web site link. You never know who might want to help out if they only knew of the work being done. Any form of help is meaningful and much appreciated! If you have questions about the Foundation or its projects, there is a contact form available here.

Added news note 6pm 8-12-18: Robert Bell advised me today that at the moment his thoughts are focused on the people of Vanuatu as they deal with a volcanic eruption that is forcing the evacuation of thousands of people off the tiny island of Ambae. So we hope that efforts to keep everyone safe will be successful and the aid needed there will be able to get through to those who need it.

Added note: For the record, I do not have any financial affiliation with KlickEx or the KlickEx Foundation. I included the information above related to the Foundation simply because I was impressed with their work and goals. Robert did not ask me to promote the KlickEx Foundation in any way. 

I view Robert as a global expert in Fintech and cover his views as news related to the potential for monetary system reform from someone who is on the front lines of what is happening currently in the real world on a daily basis. Because of this, I will add this article to our marketplace of ideas for monetary reform page.

Dr. Judy Shelton Comments on the Potential for Monetary System Reform

Dr. Judy Shelton is the US Executive Director for the European Bank for Reconstruction and Development. She accepted the nomination for this position after a number of years as Chairman of the National Endowment for Democracy and Senior Fellow at the Atlas Network. 

Dr. Shelton has long been an advocate for monetary system reform which is something we watch for here. While the world is now focused on the trade dispute taking place between China and the US, Dr. Shelton recently offered this comment on her twitter feed suggesting that perhaps this might be the right time to think about "a new international monetary system". In her comment, she refers to this recent article appearing in The Wall Street Journal.

Naturally, this comment from Dr. Shelton caught our attention so we reached out to her to see if she would like to offer some additional insight on it. She kindly agreed to a brief Q&A interview to provide some expanded thoughts on the subject. Below are her comments on the potential for monetary system reform offered for readers here.

                       

                            

Dr. Shelton being sworn in as US Director for the EBRD by Secretary Mnuchin

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Q: The world is focused right now on what some are calling a "Trade War" between the US and China. What would it take to achieve a "win-win" solution and how do you see the prospects for that outcome?

A: It is not a "Trade War" so much as an intense, behind-the-curtain focus on what has truly been happening with regard to having reciprocal access to the markets available in both countries and addressing the lack of a level playing field. Free trade is a wonderful concept and can be most beneficial to all participants--but it requires that there be no barriers to entry, no artificial constraints that prevent potential consumers from making voluntary choices, no forced sharing of competitive technology. So far it seems to me that the U.S. has the advantage in asking China and other trading partners to abide by both the spirit and the letter of free trade. Our willingness to go beyond mere rhetoric on this point underscores our commitment to the ideal.

Q: Both the US and China have used the tool of tariffs so far. Now some are asking if China may be intervening to devalue the yuan as another tool. You recently offered this idea on Twitter (should we think about a new monetary system?) My question is: Do you think that out of this trade dispute that we might see the opportunity arise for discussions on ways to reform and improve the monetary system? 

A: Certainly, I am speaking only for myself in recounting my own long-held belief that a level playing field in the monetary realm is the only appropriate foundation for genuine free trade. The point of my 1994 book Money Meltdown: Restoring Order to the Global Currency System is that a new stable international monetary system is required to serve the needs of an open global economy with the goal of maximizing the potential for global prosperity. Tariffs can have an impact on trade flows, but financial capital flows are much more influential in determining economic outcomes. Why do we concentrate so much on tariffs when the effect of differential central bank decisions and exchange rate movements can easily offset whatever consequences were anticipated to be achieved through trade negotiations? 

It seems to me that by identifying currency manipulation as an unfair trade practice, the next logical step would be to define a more appropriate exchange rate system that would prevent exchange rate shifts from undermining the terms of trade--not only for exports and imports, but also with regard to the distortions and malinvestment consequences that occur when financial capital flows are responsive to contrived monetary signals carried out by governments rather than genuinely productive economic opportunities.

Q: What should be the goal for any reform of the current monetary system?

A: Again, speaking for myself: the goal should be to preserve the sovereignty of individual nations within the context of an international monetary system that facilitates legitimate free trade by effectively determining a universal standard of value that can serve as a unit of account for evaluating goods and services across borders and through time. It may seem ironic, but the classical international gold standard was more far-sighted and sophisticated in achieving this goal than any approach we have since had; it delivered far superior results in terms of productive economic growth and shared prosperity through free trade and capital flows than our current mishmash of exchange-rate arrangements. 

It makes little sense to have some countries intervene while others don't; to ignore the impact of central banks on exchange rates; to focus on tariffs while ignoring the problem of currency shifts that may overwhelm their impact. All the while, earnest businesses and individuals bring their goods to a supposed global marketplace to compete fairly--only to be confronted with unpredictable exchange rate movements that can turned legitimately-earned profits into currency losses. We need to embrace the sanctity of sound and honest money as the only logical  premise under which free trade and democratic capitalism can succeed around the world. 

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A thank you to Dr. Shelton for taking time from a busy schedule to offer these thoughts on what she thinks monetary system reform should look like. We will continue to watch current events to see if some kind of new momentum for monetary system reform might arise out of the current global discussion on how to achieve free and fair trade.

Added notes: Dr. Shelton has been an advocate for monetary system reform for many years. We covered her presentation at the Kemp Forum on Exchange Rates and the US Dollar and also her recent paper in the Cato Journal calling for reform. She is an outspoken advocate for sound money and is widely respected by economists around the world. She has also offered concrete proposals on how to bring gold back into the system in creative ways such as by issuing gold backed bonds.

This article will be added to our page of ideas for monetary system reform which offers a variety of ideas and proposals for reform from a broad range of experts. This page is the result of years of effort to collect these ideas in one place with many of the articles including direct input from the experts involved in the various proposals.

Are Russia and the BRICS Still Interested in Bypassing the US Dollar?

If you are going to try and cover the potential for monetary system change like we do here, one aspect you have to mention is the ongoing effort by a number of nations to construct some kind of system that can bypass the US dollar. 

We have covered that quite a bit here and have noted that both Russia and China have made it pretty clear in public statements that they would like to find ways around the US dollar dominated monetary system since it provides the US with a lot of leverage globally. 

This article appearing in Russia Today back in late 2017 provides more evidence that this effort continues even though it clearly moves very slowly. Very recently Russian President Putin said that Russia "is not rejecting the dollar" but added that with the US imposing sanctions on Russia, it must take actions to minimize risks associated with holding US dollars. He also said that the US "undermines trust in the dollar as the reserve currency" by imposing restrictions on settlements in dollars. He went on to say that US actions prompt "dozens of countries to consider other options".


Below are some excerpts from the RT article from last year and then just a few added comments. I added the underline for emphasis.

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"An initiative to create a joint digital currency for BRICS countries and the Eurasian Economic Union (EEU) has been proposed by the Central Bank of Russia, according to its First Deputy Governor Olga Skorobogatova.

She said the issue of a common cryptocurrency for a number of countries is very promising, more than that for a single nation.

“The participants of different economic events where I usually take part… all come to the conclusion the issue of a virtual currency is not needed much by one country. First of all, it makes sense to discuss the cryptocurrency on the level of several countries such as BRICS and EEU. It makes sense to set one equivalent for all payments,”Skorobogatova said at a Russian finance ministry meeting."

. . . . .

“The introduction of a national digital currency seems to us not entirely justified from the point of view of macroeconomics, population...” said Skorobogatova.

. . . . . 

"In September, the chief of the Russian Direct Investment Fund (RDIF) Kirill Dmitriev said the BRICS finance committee was discussing a joint virtual currency for the five-nation bloc of developing economies of Brazil, Russia, India, China and South Africa."

Click here to read the full article in Russia Today

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My added comments: I underlined some parts of the quotes above to emphasize the lack of enthusiasm expressed by the Russian Central Bank for a "national digital currency".  This is something we have covered here pretty extensively because so many central banks around the world have talked about the idea of a national central bank digital currency (CBDC) and yet there has been no movement so far by major central banks in that direction. This is consistent with what we have reported here for some time. 

It seems like that the idea of some kind of national central bank digital currency has attracted interest and media attention, but when people look at trying to put national fiat currencies on a blockchain platform in a real world monetary system (that must be able to quickly process thousands of transactions), reality takes over and we don't hear much more about it. One notable exception is the news last fall from IBM, KlickEx, and Stellar that they would implement what KlickEx CEO Robert Bell described as "the first institutional scale implementation of blockchain".

Along those lines, I see articles constantly predicting that either Russia or China is on the verge of launching their own national digital currency any time now. But look again at the comments above from the Russian Central bank in a Russian based news publication. They don't see any reason for one national central bank digital currency. More and more central banks have made similar comments. In this case Russia is floating the idea of a common digital currency on a regional basis, but offers no time frame for when we might see this. The article cited above was first published in December 2017. It is August 2018 with no signs of the regional virtual currency mentioned in the article at this time.

So, while we should monitor this space in terms of its potential to impact the global monetary system, there is no indication at this time that blockchain based digital currencies (either national or regional) are on the near term horizon. The same situation for the IMF. They have talked about a digital version of the SDR (as we have reported here). But I have no information that the technology to implement such a thing using blockchain exists at this time. Beyond that, the IMF has not indicated they have much enthusiasm for expanding the role of the SDR in recent public statements on that topic.

While I can't rule that out some day, I have no indication at this time that anything like that is ready to go. It can't happen without the technology to do it being in place and having been thoroughly tested in the  real world. The only large scale real world type test involving mainstream financial institutions using blockchain for payments that I am aware so far is the one noted above from IBM, KlickEx and Stellar .

Added note: Coming up over the next couple of weeks are two interesting articles. First, Dr. Judy Shelton comments on the potential for monetary system reform arising out of the current world debate on free and fair trade. After that, Robert Bell of KlickEx gives us his take on where he sees the monetary system going based on his real world experience working with the latest innovations in fintech.

Efforts to Make Gold Money Popping Up Around the Globe

Recently, we featured articles on the efforts by economist Keith Weiner and the new gold payment system Glint to encourage people to use gold as money again. There is a bit of a trend in place now around the world as various initiatives move forward on that front. 

Below we will list a few of the more high profile efforts underway and provide a brief update on where each one stands as of today. We will follow this over time to see if the trend continues and picks up momentum.

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Goldmoney - Precious metals investing and payment system

Goldmoney has been involved in the effort to make it easier to use gold like money for some time now. They offer a variety of precious metals investments and also a payment system app they describe this way on their web site:

"The Goldmoney™ App for iOS and Android provides access to all Dashboard features and functions, enabling you to manage your Holding and buy, sell, exchange, and redeem precious metal bullion through an easy-to-use and highly secure interface. Need to make a payment? Send and accept precious metal payments to and from other Goldmoney Holdings and businesses, and earn metals by referring friends and family to Goldmoney."

Goldmoney has also announced they plan to expand their services into China. This is some news that will be interesting to follow over time. In their most recent conference call, CEO Roy Sebag talked about moving into China:

"If I can move on to Goldmoney China. This is a venture we’re also very excited about. We are rapidly approaching launch date.   

. . . . . 

What we’re presently doing, in terms of the technical aspects of the launch, is we are hiring and training Mandarin-speaking relationship managers, Mandarin-speaking compliant staff, and beginning to test out live accounts. The entire build-out of Goldmoney China has been completed in both the back-end and the front-end. The URL is actually available. We purchased the domain Goldmoney.cn. And, we have also set up a local server within the Great Chinese Firewall. So, we ask our investors to stay tuned, but we expect this venture will be launched within the next four to eight weeks (comments made in late June 2018)"

Goldmoney is a public company and its stock trades in Canada (TO:XAU) and in the US under the symbol (XAUMF). Goldmoney also offers users the opportunity to buy cryptocurrency. They describe that process on their web site here.

Glint  - UK based gold payments system

We have previously covered Glint here both at their initial launch last November and also with a recent update on their new expansion plans. Glint is preparing to launch into the United States this fall. The Glint app allows users to move funds between gold and various fiat currencies (USD, pounds, euros)  for a fee of .50% per transaction (50 cents on a $100 transaction). This can be done on a mobile phone app so any gold owned is quite liquid. Notice that users can also exchange fiat currencies for a very low transaction fee compared to many other such services offered by regular banks, etc.

I would encourage readers to look at our very recent interview with CEO Jason Cozens for the details. Here is one Q&A from that interview:

Q: One hurdle that gold faces is the tendency for people who own gold to hold it rather than spend it. How does Glint encourage users to spend gold rather than just to hold it more like a long term investment?

A: If all you can do is hold gold then that’s what you are going to do, you’ve never been able to do anything but save and trade in and out of it so that’s where the ‘tendency’ comes from. The mere fact that, for the first time, Glint clients can now spend their gold at the electric point of sale, in real-time without selling it in advance, means that clients can and are spending their gold.

There is an education taking place  for some about the benefits of a gold ​currency​ and a behaviour change for others​,​ but the Glint App makes that very easy. People are starting to realise that saving and spending from their Glint gold account insulates them from inflation, protects them from banking and systemic risks​ (​let's hope we ​don't ​have another financial crisis) and allows them to move to one Global Currency that transcends all others.   - Jason Cozens, Glint CEO

Glint is also completing a successful crowdfunding as part of an overall fundraising of 15 million pounds. They will use these funds for the upcoming expansion efforts in the US, Japan and other locations. Glint is privately held.

Monetary Metals - Keith Weiner is the CEO - Offers gold based yields and financing

As noted above, we have recently featured the efforts of CEO Keith Weiner to get the State of Nevada to allow the issuance of gold and silver bonds (see recent Kitco article here). We also featured his proposal for an unadulterated gold standard. Both of these efforts are intended to encourage a return to gold being used like money again. Keith takes a bit of a different route by offering creative ways for gold related entities and gold investors to interact with each other by using gold for various kinds of financing arrangements. Investors who are gold lenders can earn a yield paid with actual gold. Gold related entities who want to borrow gold can reduce hedging sometimes needed to offset gold price volatility risk (examples might be jewelers, pawn brokers or bullion dealers).

Keith argues that gold needs to produce a yield to encourage broader use of it as money. Monetary Metals has been at this for some time and Keith is clearly working towards encouraging state governments (especially those with gold producing mines) to issue gold and silver bonds that are denominated in ounces of gold and silver and pay interest in actual gold and silver.

Keith offered this comment by email to include in this article:

"Interest is the key to circulation of gold. Without interest, even a working gold standard would seize up, as people would pull gold coins out of circulation to hoard. Interest is the only force that can pull gold out of private hoards." -- Keith Weiner (8-1-18)

Kinesis - A Proposed Alternative Monetary System

Kinesis is still in its startup phase. Kinesis comes at this objective with a completely different approach. Kinesis is a proposal for an entire alternative monetary system based on two cryptocurrencies that are 100% backed by allocated gold and silver. Kinesis also plans to use the blockchain to offer initial investors its investment token (Kinesis Velocity Token) that is based on the ethereum platform. The gold and silver currencies (KAU and KAG) will operate on a Stellar based platform (for better transaction speed and volume). In public interviews, the Kinesis CEO has indicated that Kinesis plans to bring together precious metals investors, users, wholesalers, producers, along with crypto users and anyone else who would like to participate in a completely new alternative monetary system. 

The thing that makes Kinesis unique is that all of the participants in the system are eligible to earn a yield derived from the transaction fees the system generates. Kinesis believes that this yield based system will encourage retail uptake and also velocity of their KAU and KAG currencies. They hope that this incentive will allow gold and silver to overcome "Gresham's Law" such that people will be willing to use gold and silver like money again rather than just hold it as an investment. This is because the higher the velocity in the system, the more fees they can distribute back to system participants in the form of various yields. Basically, in the Kinesis system, everyone can become like a bank and share in the overall transaction fees that normally would only go to the bank. The fee per each transaction is .45% (45 cents on a $100 transaction).

Kinesis through its partner ABX (Allocated Bullion Exchange) has announced some partnerships (here and here) that will be interesting to follow over time. Kinesis plans its currency launch next spring so it's early days yet. It will be interesting to see how things unfold with this creative new idea. Kinesis is funded by investors who buy the KVT tokens, which are currently available for sale on their website. In a recent webinar update, CEO Tom Coughlin announced initial funding targets (exceeding $15 million USD) have been met. You can read the white paper here.

Ryan Case, Head of Trading and Sales at Kinesis, offered us this comment to include in this article:

"Kinesis has already received backing from institutional and retail investors and has recently begun announcing agreements with precious metal market participants. In addition to its technology-driven approach, Kinesis brings strong precious metal industry expertise, attracting a lot of positive attention."

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My added comments: In looking at the various initiatives above, one common goal pops out very quickly. All of these efforts are directed towards encouraging people to use gold (and in some cases silver) like money in new and creative ways. These are clearly not your grandfather's classical gold standard :-)

They combine old forms of money (gold and silver) with a variety of new technologies in an effort to make it easier and more practical to use gold and silver on a daily basis for the average person. Interestingly, the gold based payment systems mentioned above are also designed to integrate with the existing banking system and fiat currencies in an effort to offer the end user maximum choice and flexibility.

It appears at this time that all of these efforts are meeting with some success and are moving forward with plans for expansion. All of them have a goal of eventually achieving widespread public adoption. The process obviously takes time, but it is worth following over time to see if it leads to either reforms in our present monetary system or even a viable alternative monetary system. Precious metals based systems do have to contend with legal tender laws and tax regulations that may vary across the globe. Central banks currently favor the fiat currencies they issue in that regard.

If the current monetary system were to fail in another major global crisis, these new initiatives could see wide scale adoption very quickly as people searched for viable alternatives. But they are also designed to compete and function as viable alternatives under the present monetary system without relying on some kind of systemic failure to succeed. The current global gold market is north of $7 Trillion, so there is plenty of room for these ventures to compete and succeed in that space. They are also designed to attract interest from more mainstream investors outside the precious metals markets which allows for expansion beyond the current gold market over time. It will be interesting to see what happens.
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Added note: Just for the record, I do not have any financial interest or affiliation with any of the entities featured here on the blog (including the ones mentioned in this article). Information presented here is intended to be educational for readers about various efforts to reform the monetary system or offer new alternatives to it. Gold being used like money falls into that category, so I try to cover that as news when I get information related to it. This blog does not offer investment advice and is not intended for that purpose. Articles featuring products or services are not intended to be endorsements.