DigiGold Ltd. is designed to serve as a private sector currency board, issuing a worldwide gold denominated currency (AUG) that carves out market share as a reserve asset and medium of settlement for financial intermediation, based primarily on its explicit and credible commitment to continuous convertibility on demand into the underlying non-financial base money, e-gold. A question that arises with nearly every attempt to explain DigiGold’s role is; “Are there any merchants that accept DigiGold?”. My usual answer is that DigiGold is intended for use as a financial currency [e.g. cash reserve for banks that participate in the AUG economy] and purposely avoids direct competition with higher level currencies such as Standard Reserve gold that feature automated interfaces to support retail and other specialized payment applications. Perhaps it would be helpful to elaborate further by contrasting DigiGold’s payment protocols with those of the institutions it seeks to directly compete with, the Federal Reserve and the European Central Bank (ECB)– the two currently dominant contenders as worldwide financial currencies. Essentially all significant government central banks and currency boards directly implement two types of payment protocols: 1) an online Real Time Gross Settlement System (RTGS), and, 2) tokens for offline settlement (paper cash and coins)*. Are there any merchants that accept Fed dollars (that is, dollars that represent direct liabilities of the Fed, that monetary aggregate that could be called M0)? Yes, but the only way they can accept them is by physical transfer of possession of the Fed’s paper cash or coins. Huh? Merchants can accept wires, that are settled on Fedwire, the Fed’s RTGS - can’t they? Well… yes and no. No one but qualified financial institutions (banks) may maintain an account at the Fed or the ECB. You as end user may only access remote payment systems indirectly, and to do so you must loan money to (that is, maintain a deposit account at) a financial institution. The bank receives the wire and your account statement will then reflect that the bank owes you the net amount received http://www.frbservices.org/Funds-Transfer/frFunds.cfm Other than the paper dollars you hold, all the US dollars you own are the liability of some higher level financial intermediary. DigiGold differs from the Fed or the ECB in that it allows anyone to establish/maintain an account, immediately and at no cost, with unrestricted access to its RTGS system – the SOX/Ricardo technologies developed by Systemics, Inc. and licensed to DigiGold Ltd. Another difference is that settlement of a DigiGold payment entails no fee whatsoever. Member banks of the Fed pay between 17 and 33 centidollars for a settlement using Fedwire's automated interface ($15 for offline, that is, if one of the Fed’s own wire clerks must manually input the origination or send out a notification). The ECB charges member banks up to EUR 1.75 per automated settlement. More fundamentally, DigiGold differs from government central banks in that DigiGold is subject to the rigorous discipline of redemption on demand for an underlying base money (as, ideally, are other currency boards). Changing gears to talk about offline settlement, consider this scenario. As things stand, inhabitants of every poor country in the world who hold a quantity of US paper dollars are subsidizing the United States government.** Most folks don’t mind this and they actually benefit if one compares the US dollar to the monetary alternatives that have heretofore been available to them. Just possibly, however, given a greater variety of choices, people (or, more to the point, the ruling elite of various non-OECD countries) might select differently. Certainly the ECB is hoping that its paper money, once released, will find its way to every corner of the world. But why would someone prefer EUR to USD? The two don’t differ regarding the most significant functions of money. Money transmits value through time. In this repect, which one can think of as the store of value function, the only difference between the USD and EUR is the details of their respective asset portfolios, that is, which particular government bonds they hold. In terms of the other major function, conveying value across ownership boundaries (from payer to payee), the only differences might be in the security features of the paper or the handiness of different size bills for different value denominations. Certainly any differences in the respective RTGS systems would be non-apparent to end users. [All higher level settlement mechanisms such as clearinghouse/netting arrangements depend on the local banking system and other infrastructure that have no direct relation to the foreign central bank in question.] So this is the lead-in to bring up DigiGold’s rationale for starting to explore offline settlement. The RTGS it uses is superior in the respects noted above. [When people complain about the non-intuitive WebFunds interface, I think to myself that it probably isn’t nearly as tough to grasp as the FedWire interface that wire clerks must master. Also, odds are that installing a FedWire client or terminal will always require a housecall from a service tech , whereas the WebFunds client will only get easier and easier for users to download and install]. To go head to head with the Euro, though, DigiGold needs to offer a better way of conveying value in hand-to-hand cash transactions. Here’s the room for improvement. If you find some paper cash lying in the street, there is strong incentive to pocket it. It would be really silly to make a little placard that says “Found Cash – please claim if yours”. Suppose however that you found a tamper resistant hardware token that holds value that can only be accessed by its owner, that has been personalized by a PIN or some biometric authentication. You would have every incentive to put it in the lost and found, since you would hope and expect that others would extend you the same self-interested courtesy. The incentive for burglary of cash would evaporate. The cane cutter who currently has no good way to safeguard what money he has (too poor for bank account, hut too insecure for hiding it) could leave his iButtons or smartcards lying around confident that there would be little incentive for anyone to steal them. So, returning to the question – “Do any merchants accept DigiGold?” - the intent is that they can use the offline settled version, capturing the point of sale accounting with their cash register as they would with any other cash. The important thing though is that the gold based economy becomes fleshed out with a profusion of competitive solutions for conveying value. e-gold, as the base money, and DigiGold, as the core financial currency, are critical elements of the foundation on which such solutions are being built. In my next post I will be soliciting some advice relating to the preliminary requirements for DigiGold's offline settlement mechnism(s). *Actually the ECB hasn’t released its offline tokens as of yet, so the only way its direct liabilities circulate is via Target, its RTGS system. ** By accepting owning Federal Reserve Notes you are extending an interest free loan to the Fed that enables the Fed to loan more money to the US Treasury (by buying/holding its bonds and other securities) than it otherwise could. --- You are currently subscribed to e-gold-list as: archive@jab.org To unsubscribe send a blank email to [EMAIL PROTECTED]
