Douglas Jackson wrote:
>
> 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).
I look forward to this promised post.
Digigold, if it could be had as paper as well as in webfunds, would be a
fantastic currency. There is a real need for a fee free physical cash
that is financially sound and gold based if gold is to take off more
generally. It seems to me that only by holding financial assets can a
currency provider avoid direct fees on users for transactions or asset
storage. But I don't think the majority of end users give a damn if
their currency is backed by financial assets, provided they know its
sound.
Paper currency has the advantage of being holdable by anyone, without
any joining process.
David Hillary
>
> *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.
>
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