[extropy-chat] re: The Economist 14-page special on oil

Mike Lorrey mlorrey at yahoo.com
Fri May 6 23:54:16 UTC 2005

--- Rik van Riel <riel at surriel.com> wrote:
> On Wed, 4 May 2005, Mike Lorrey wrote:
> > That being said, I do work for GoldGrams
> (http://www.goldmoney.com).
> Yet another precious-metal-backed currency. What I don't
> understand is where the people behind these currencies
> make their money - and that directly impacts my impression
> of the long term viability of the currency ;)

It's pretty easy to figure out: Aggregate warehouse gold currency
issuer purchases $1 million in gold at spot price plus, maybe 0.5%, in
expectation of $1 million in total buys by individuals holding accounts
at their warehouse. The smaller buyers, being smaller buyers, pay a
premium of 1-3% above spot to purchase holdings in the warehouse.
Holders are able to spend their gold for free, and the value of their
holding floats with the spot price, so when they buy 3 oz. at
$420/oz+3% on Friday, but spend 1 oz on Monday when spot prices have
risen to $437, they find they earned their premium back already.

Meanwhile the warehouse gives $437 on Monday for the redeemed ounce,
but sells that ounce to another customer who is buying on Monday for
spot plus 3%.

GoldMoney.com has something like $50-80 million in holdings after only
a few years of operation, and operating on the deposit side very slowly
for those who want to remain unbanked and don't work with people who
can do ACH transfers. Online spends are quick and painless. Spends in
the real world are tiresome. Whoever makes keeping and spending metal
holdings as easy as, say, a debit card, is going to make a mint..... ;)

Metal money folks have done fine over the last several years. Bernard
von Nothaus told me the other day that his days are generally between
$20,000-80,000 in sales of coin and receipts at NORFED, with a total
circulation of about $15 million. He has much larger margins, which is
to be expected given he is actually coining lawful money, but there is
a barrier to entry for people who think they ought to be able to buy
coin at mass quantity boullion spot prices.

Mike Lorrey
Vice-Chair, 2nd District, Libertarian Party of NH
"Necessity is the plea for every infringement of human freedom.
It is the argument of tyrants; it is the creed of slaves."
                                      -William Pitt (1759-1806) 
Blog: http://intlib.blogspot.com

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