•   almost 12 years ago

RCM as custodian of foreign currencies & gold

While thinking about how the Royal Canadian Mint (RCM) works with other government entities, it occurred to me that the RCM does not create real Canadian dollars when issuing digital dollars. They receive "real" (non-MintChip) Canadian dollars from the Bank of Canada which is the true owner of the Canadian money supply. Thus, the Mint only acts as a custodian of Canadian dollars on behalf of its digital users (Mintchip users). Of course, even the "real" dollars are digital, but in another form (non-MintChip).

I wonder if the Mint could also act as custodian for other currencies. Doing this would guarantee convertibility of every foreign note issued by the RCM thru MintChip. This means that if you receive a Euro from another MintChip user, you know that you can always go back to the RCM to get a “real” euro coin back. Actually, that would be the only way the Mint could issue foreign notes without increasing the foreign money supply. Same thing goes for any other currency.

The idea can even be extended to non-fiat monies like gold and silver. The RCM would hold one gold gram for each gold gram issued with MintChip. You can then pay others in gold grams with a MintChip. You can redeem each gold gram stored in your MintChip with real gold grams from the Mint. Gold grams would simply be another currency code.

  • 10 comments

  •   •   almost 12 years ago

    Not sure if you've seen http://developer.mintchipchallenge.com/devguide/ecosystem.html , but basically you're thinking of the RCM being both the Minter and the Trusted Broker in the diagram. I haven't yet seen who is in line to be the Trusted Broker(s) for Canadian currency, so it'll be interesting to see what kind of institution is imagined for this role.

  •   •   almost 12 years ago

    Hi Wayne,

    Only the RCM has power to issue MintChip currency, regardless of the currency used. The brokers need to obtain the MintChip currency from the Mint (by paying for it), they cannot issue MintChip currencies themselves. Thus, the trusted brokers could be any entity that users are willing to trust with their banking information.

    Still, it would be nice if you could send any kind of collateral to the Mint, they would hold it and give you a digital representation of whatever collateral you sent them. The collateral could be real (gold/silver/physical notes) or digital (WoW gold/bitcoins/paypal/SWIFT currency/...) but the MintChip would become the conduit to exchange the said collaterals.

  •   •   almost 12 years ago

    The key issue with gold on the chip is that one must have a real time connection to gold exchange rates to figure out the current value in any currency. This also is somewhat against the Ewallet concept. There are Cities like munich in germany where you can buy bus-tickets in the bus only with cash chips and the drivers do not have any money anymore.

    Gold would be an interesting approach, but can we handle that?

    Willi

  •   •   almost 12 years ago

    You wouldn't need to know the current value in any currency; it's being suggested that you're paying in the currency of gold, at whatever value you agree gold has at that time.

  •   •   almost 12 years ago

    Hmmm?
    Do you expect the rolls at the bakery around the corner or the bus ticket being priced and offered in exchange for ounces of gold?

    Willi

  •   •   almost 12 years ago

    In a MintChip, Gold would be a currency like any other (USD, CAD, Euros). You do not pay a german bus driver with gold but with Euros. Think of MintChip as a digital wallet. Your wallet does not do foreign exchange, neither does Mintchip.

    However, using a broker, you could convert fiat currency in gold, and hold it in your MintChip. Keep that MintChip in a safe place, because if you loose it, the RCM keeps your gold!

  •   •   almost 12 years ago

    @WilhelmW No, not the bakery, but anyone who might want to trade gold could do so; not gold with a value based on another currency, but just gold itself.

    Just as there's no reason you and I might not want to deal in euros instead of dollars, there's no reason the next two people couldn't desire to deal in gold. And our trade in euros wouldn't be because of some given exchange rate to the dollar, just as the gold traders wouldn't care about its value in some other denomination.

  •   •   almost 12 years ago

    Sorry for moving away from the E-wallet style discussion, but it is very tempting to discuss a monetary replacement. I seriously believe that this could happen if the right tools for the trade are found and/or if people have no other choice such as in deep economic depressions and that like.
    ;-)

    As Philippe M States "Gold would be a currency like any other (USD, CAD, Euros)" is a good and desirable Idea. However, it moves us away from doing network- or wireless- transactions. It further breaks the Idea of an E-wallet that allows anonymous transactions that protects privacy. Even today I can use my Web-browser on a cell phone to buy and sell gold wherever I have connectivity. The gold itself then is handled with my broker and The only thing I get is a account statement of the brokerage depot and for the money transaction I have done with my bank account.

    E-wallets on the other hand work everywhere but they are bound to the currency used. They are bound to the economic performance of the country that issues the currency we trade in. The time is over where currencies where bound to the amount gold stored in some save place ;-)

    So I assume, that it might need a very long period of time or possibly another war with a real and global economic crisis to open a window for gold to become a global currency. The MintChip of course then would be a great tool to collect, transport and spend any amount of gold.

    Wayne P also reflects that "there's no reason the next two people couldn't desire to deal in gold". This implies that there is a mutual agreement between the two parties and of course this will not arrive very soon at my bakery without changing payment habits in general. So I assume that this use of a MintChip-Gold might be restricted to bullion- or precious metal- traders for a long time since they have their networked brokerage machines and hand out wafers of gold if necessary. Only the last item, handing out or trading in gold could be replaced with the Mint-Chip-Gold.

    This rises a lot of questions:
    - What needs to be changed in economic policies to allow gold becoming the global currency even for petty-payment?
    - Will barter-trade rules apply to exchanging gold for goods and services?
    - Does the Mint-Chip-Gold require all participating currencies of countries being bound to gold again?
    - Will inflation etc. be bound to the value of gold as well?
    - When will my employer add a certain amount of gold to my wallet instead of money?
    - Today, governments have reserve currencies in currencies of other countries. Will this reserve-currencies become obsolete?
    - Will the value of gold skyrocket if gold is used everywhere?
    - Will trading in gold be limited to a limited circle of people in the global society?
    - Successful replacement-currencies (e.g. work units) that where used during depressions had a build in devaluation. e.g. they had to be re-used within a period of time. Is such a mechanism necessary for gold as well? In particular when it is used for petty payments?
    - Historically we had the experience of barter-trade and replacement-currencies during and after deep economic depressions. How can we make another transition without wars or deep economic depressions in future?

    - …

    So I can think of a Mint-Chip-Gold for limited use. But not to replace my wallet and petty payments very soon.

    Willi

  •   •   almost 12 years ago

    @WilhelmW

    Agreed, we're not likely to see MintChip-Gold as a popular transaction currency, but the discussion was whether such a thing was possible - not just Canadian dollars, or other sovereign currencies, but anything two parties deem a currency - gold, cowrie shells, goats.

    And, as long as the two parties agree that that is their fundamental trade currency *regardless of its exchange rate with another currency*, they can continue to mutually agree on such a currency, and expand it to any other parties that wish to join. Only when their trade needs to include those that do not accept this currency, but prefer a more traditional form, does the exchange rate come into play.

  •   •   almost 12 years ago

    "… but the discussion was whether such a thing was possible - not just Canadian dollars, or other sovereign currencies …"

    I believe it is possible.

    However challenges like this could provide just the right grass-root environment to come up with ideas that make such things happen without the need of a great wars or deep depressions.

    We just need the right ideas to generate demand. Who thought 25 years ago that the success of the Internet can not be stopped by authorities anymore.

    Lets keep trying

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