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Why the SEC keeps rejecting Bitcoin ETF listings

Last week the U.S. Securities and Exchange Commission (SEC) refused to approve nine different proposals for bitcoin exchange traded funds (ETFs). This comes on top of a number of prior SEC refusals of bitcoin-based funds, including the SolidX Bitcoin Trust and two separate denials of the Winklevoss Bitcoin Trust, the first in 2017 and the second this summer.

Why have so many other U.S.-listed commodity ETFs been approved over the years whereas bitcoin ETFs keep getting rebuffed? It is tempting to view the SEC smackdown of these bitcoin ETF proposals as a sign of distaste for this new and anarchic technology. But I don't think this reading is accurate. If anything, SEC vs Bitcoin is less about Bitcoin and more about the SEC's attempt to impose standards in an age where Wall Street is trying to package almost everything into a broadly-available security.

Precious metals buyers will of course be familiar with ETFs. The granddaddy of all commodity ETFs, the SPDR Gold Trust, or GLD, has been around since 2004 and is currently backed by around US$29 billion in physical gold, or 760 tonnes. All ETF units trade on a stock market. A peculiar set of mechanics ensures that they replicate the price of their underlying index or commodity. Using GLD as an example, if the price of the ETF is above the current gold price, then special institutions (otherwise known as authorized participants) can buy physical gold, exchange it for new units of GLD, and sell those units at a profit. If GLD is trading below the gold price, these same authorized participants can buy the underpriced GLD units, redeem them for gold, and sell the commodity for a risk-free gain. Competition among authorized participants for profit ensures that the two prices do not diverge by very much. Regular investors do not have the ability to convert units into gold, or vice versa. (For a more thorough explanation, see Bullionstar's introduction to gold ETFs.)

The SEC has approved ETFs that track gold, silver, platinum, palladium, copper, oil, natural gas, coffee, as well as broader-based ETFs that track baskets of commodities. Virtual currencies like Bitcoin, also known as cryptocurrencies, have been defined by the U.S. Commodity Futures Trading Commission (CFTC) to be commodities. The SEC's refusal to allow bitcoin ETFs thus has nothing to do with bitcoin's underlying nature: like gold, silver, and the rest, it is legally a commodity. Rather, the reason that the Winklevoss Bitcoin Trust, the first of the proposed bitcoin ETFs, has failed to make it through the SEC's doors is that the SEC doesn't like the way that the market for bitcoins is structured.

Cooperation from crypto exchanges - A tall order

Specifically, the SEC is unhappy with the inability of the the Bats BZX Exchange, the stock exchange on which the Winklevoss Bitcoin Trust is seeking a listing, to secure information sharing agreements (ISAs) with important bitcoin exchanges. An information sharing agreement between the Batz BZX exchange and, say, Chinese-based Binance, one of largest bitcoin exchanges, would obligate Binance to share relevant data about market trading activity and customer identities with Bats.

The SEC believes that information sharing agreements with significant exchanges are key to compliance with the Securities Exchange Act, the body of legislation that governs the SEC. Specifically, Section 6(b)(5) of the Act requires the SEC to ensure that the securities exchanges it regulates, including Bats BZX, are designed to prevent fraudulent and manipulative acts and to "protect investors and the public interest."

The SEC has chosen to take a very strict interpretation of 6(b)(5) when it comes to the listing of an overlying security, i.e. securities that derive their value from some underlying security or commodity (much like how units of the Winklevoss Bitcoin Trust overlie, or are underlain by, physical bitcoin). Not only must an exchange like Bats BZX ensure that it has controls to prevent manipulative behaviour of Bats-listed overlying securities, but it must also take reasonable steps to ensure that the underlying instrument to which it is linked is traded on an exchange that is held to the same standards. The SEC deems that an information sharing agreement between the relevant exchanges is sufficient to fulfill this requirement. That way, if there were to be suspicions of manipulation of bitcoin on the Binance exchange, Bats BZX would be able to get data from Binance and use it to conduct investigations into possible trading violations.

In its second refusal of the Winklevoss Bitcoin Trust, the SEC maintained that it has a long history of requiring information sharing agreements between SEC-regulated exchanges that list overlying securities and exchanges that list the underlying instrument. It points to a ruling it made in 1994 in which it required that the CBOE, which wanted to list equity options on American Depository Receipts (ADRs), would in certain cases be required to have a formal mechanism for getting information from the overseas exchanges trading the individual stocks underlying the ADR.

The SPDR Gold Trust as precedent

The SPDR Gold Trust (GLD) provides further precedent. When the SPDR Gold Trust was approved in 2004, the sponsoring exchange, the New York Stock Exchange (NYSE), was unable to establish information sharing agreements linked to spot trading. Securing agreements was deemed impossible since most gold spot exchanges occurs relatively informally via the London over-the-counter gold market.

In lieu of information about spot exchanges, the SEC decided that two factors were sufficient for the proposal to meet its requirements. First, it claimed that gold OTC markets are very liquid and thus difficult to manipulate. Second, the NYSE had an information sharing agreement with NYMEX, whose COMEX division listed the most popular set of gold futures contracts. Since the COMEX market is a regulated exchange that the SEC deemed "significant", the sharing of information between the NYSE and COMEX would help ensure that manipulation could be caught. The meaning of "significant" is sizable relative to overall trading volumes.

In the case of the Winklevoss Bitcoin Trust, the Bats BZX had entered into an information sharing agreement with the the Gemini Exchange, a New York-based bitcoin exchange that allows for spot trade. However, the SEC has decreed that this agreement is not sufficient to meet its requirements. The SEC maintains that bitcoin trading is dominated by unregulated non-US exchanges (like Binance). In this context, Gemini accounts for only a small fraction of global bitcoin trading, and therefore if a manipulation attempt were to succeed in causing a large change in the price of bitcoin, it would likely be carried out on a dominant exchange, like Binance, and not Gemini. Thus, an information sharing agreement with Gemini simply won't be effective for sniffing out manipulators.

A quick perusal of Coinmarketcap.com, a website that tracks bitcoin trading statistics, confirms that unregulated non-U.S. bitcoin exchanges dominate bitcoin trading (see screenshot below). On 31 August 2018, for instance, Gemini ranked 74th in terms of 24-hour bitcoin volume, at $18 million, whereas Binance clocked in near the top at $295 million.

Exchanges with the most bitcoin spot trading

Nor is the existence of information sharing agreements with a regulated bitcoin futures market sufficient to change the SEC's opinion. This is relevant because two large U.S. futures exchanges, the CBOE Futures Exchange (CFE) and CME, both launched trading of their bitcoin futures contracts in December 2017. Given that an information sharing agreement between the NYSE and NYMEX was sufficient to allow GLD to list, would an equivalent agreement between Bats BZX and either of these two futures exchanges constitute enough support for the Winklevoss Bitcoin Trust to proceed? Not so, says the SEC. In the case of other commodity ETFs like GLD, the SEC had sufficient evidence that the U.S. futures market for that commodity was large enough to be "significant." Regulated bitcoin futures still constitute a relatively unimportant part of overall bitcoin trading.

This logic used by the SEC needn't just apply to bitcoin. It might explain why there is no rhodium ETF in the U.S., for instance, whereas there is one in both Europe and South Africa. Since there is no exchange that offers rhodium futures and the spot market is relatively opaque, it would not be possible for an SEC-regulated exchange to set up the information sharing agreements necessary for SEC approval of a rhodium-based financial product. This echoes what I said at the outset: the SEC's decision is less about bitcoin and more about grappling with the complexity of market structure in an age in which financial magicians are trying to package everything into an exchange-traded product.

Dissent within SEC: underlying asset out of scope?

Interestingly, one of the four SEC Commissioners, Hester Pierce, dissented from the regulator's decision to disallow the Winklevoss Bitcoin Trust to be listed. Her reasoning is that a reading of Section 6 of the Exchange Act does not permit the SEC to focus on the underlying market for a proposed security, whether that underlying market be the bitcoin or gold spot market. Pierce believes the SEC only has the right to regulate the market for the overlying asset, i.e. units of a Bitcoin ETF or a Gold ETF. Pierce has previously advocated a Hayekian view of markets, in which the dispersed nature of information leaves no roll for a single "omniscient" regulator:

"Regulators are people, and they are people without great access to information, so we're asking them to do a task that they're destined to fail at... not because they don't have good intentions and not because they don't work hard... they do... they're hard working people but they're just not going to be able to succeed at the task."

Pierce's criticism would constitute not just a roll-back of the SEC's bitcoin decisions, but would also throw out a decade or two of previous SEC decisions related to information sharing practices of proposed commodity-linked ETFs.

The next Bitcoin ETF - Further rejections likely

The next big bitcoin ETF that is slated for an SEC decision is the CBOE Exchange's proposal to list the VanEck SolidX Bitcoin Trust. Given that Pierce's dissent is unlikely to sway the three remaining SEC commissioners, I don't expect this ETF to be approved. Let's look at the part of the proposal that has to do with information sharing agreements:

From VanEck SolidX marketing material (source)

The creators of the VanEck SolidX Bitcoin Trust point to a number of information sharing agreements into which the sponsor, the CBOE, has signed (or expects to sign). We already know that those with the CME, which lists bitcoin futures, and Gemini will not be sufficient to establish significance. What about the agreements signed between the CBOE and Bitcoin over-the-counter trading desks? The creators claim that the relevant OTC markets account for around US$250–$500 million in trading per day. But with overall exchange-related bitcoin volumes said to come in at around $4 billion per day, it will be difficult for the creators to prove that OTC trading constitutes 'significant'.

Lastly, the creators of the trust point to "other USD-bitcoin spot markets." I interpret this to mean that they may succeed in getting other U.S.-based bitcoin exchanges to join Gemini in sharing information. But if it can't get some of the largest actors in the list above, say Binance, Bitfinex, or OKEx, all of which are based outside of the US, it's hard to see how the SEC will provide its stamp of approval.

Turkey’s Attempt to Mop up Mattress Gold

This blog post is a guest post on BullionStar's Blog by the renowned blogger JP Koning who will be writing about monetary economics, central banking and gold. BullionStar does not endorse or oppose the opinions presented but encourage a healthy debate.

The Turkish government, in particular its central bank, has a relatively unique relationship to gold. Few governments directly involve themselves in the gold market as much as Turkey's. This post provides a short review of this relationship.

Gold is popular in Turkey. According to a 2015 report by the World Gold Council, Turkey generally accounts for around 6% of global gold consumer demand. It is further estimated that there are around 3,500 tons of under-the-mattress gold in Turkey, which makes Turkey one of the largest gold sinks in the world. The existence of this "mattress gold" is believed to inhibit the growth of bank intermediation. By encouraging Turks to bring their gold to banks to be deposited, Turkish authorities believe that overall engagement with banks will increase, presumably leading to faster economic growth. Notably, India has also been very aggressive in trying to bring "idle" gold into the banking system, having launched a gold monetization scheme in 2015.

Required reserves in the form of gold

The nation's central bank, the Central Bank of the Republic of Turkey (CBRT), has become particularly active in the campaign to draw gold into the banking system. It does so by allowing central banks to keep some portion of their required reserves in the form of gold. Let's unpack the idea of reserve requirements a bit more. Central banks often (though not always) require deposit-taking commercial banks to permanently freeze a fixed amount of reserves at the central bank. (Canada for instance has no reserve requirements). A central bank that imposes reserve requirements typically remunerates reserves at a below-market rate, sometimes 0%. Required reserves therefore function as a tax on the banking system. If banks weren't required to keep funds in their central bank accounts, they would be investing the funds elsewhere at a higher rate.

Turkish banks were cut some slack in 2011 when the CBRT implemented a special program called the Reserve Option Mechanism, or ROM. Instead of requiring that banks meet their entire reserve requirement by holding poorly-compensated Turkish lira funds at the CBRT, the Reserve Option Mechanism allowed them to satisfy up to 30% of their requirements by depositing gold at the central bank. This offer was quickly taken up by Turkish banks, who began to deposit gold up to the maximum allowed amount. The chart below  illustrates the popularity of the ROM. The 30% tranche, which was introduced in stages starting with a 10% tranche in 2011 and subsequently boosted to 20% and then 25% in 2012, has almost always been used to its full capacity.

Utilization of the CBRT's Gold Reserve Option Mechanism (Source)

Given Turkish banks' eagerness to deposit gold, it is fair to say that the Reserve Option Mechanism offered banks a cheaper alternative for meeting reserve requirements than the traditional avenue of borrowing Turkish lira funds and keeping them on deposit at the CBRT. Put differently, the gold option has provided bankers with a route for reducing the size of the tax imposed on the banking sector by reserve requirements.

Gold deposit accounts

To help attract the necessary gold, Turkish banks began to offer the public the option of opening gold deposit accounts. These accounts can either be current deposit accounts, which can be withdrawn at anytime, or time deposit accounts, which are locked in for a period of time. Time deposits are remunerated. HSBC Turkey, for instance, currently pays gold depositors 1.25% for a one-year fixed deposit, as illustrated below. In effect, the tax break that the CBRT provides banks via the Reserve Option Mechanism is being shared with the Turkish public in the form of interest.

Turkish gold deposit rates (source)

The gold is held in unallocated form rather than in allocated form. When a customer deposits physical gold with their bank, the bank in turn takes its customers' grams and pushes them at the CBRT to meet a portion of its reserve requirements. A customer can also deposit Turkish lira to open a gold account. In this case, the bank can use those funds to purchase gold in order to meet its reserve requirements.  In general, banks do not seem to allow customers to withdraw their gold in physical form. ISbank is an exception, but only allows conversion of gold deposits in amounts greater than five kilograms. Turkish banks have other options for securing gold including borrowing or swapping for gold in the institutional gold market.

By mid-2013, CBRT data shows that around US$12 billion worth of gold deposit accounts had been opened by banks, representing around 200 tons of gold. But gold deposits wilted through 2015 and 2016, eventually falling to around 75 tons worth. As of April 2018, around 150 tons worth of gold deposits are outstanding, as illustrated by the blue line in the chart below.

Gold deposits at Turkish commercial banks (source)

Keep in mind that only a fraction of this 150 ton deposit base would have been opened with actual mattress gold, the majority probably being purchased by depositing Turkish lira. So although the ROM has been almost fully utilized and has encouraged the growth of gold deposit accounts, most of Turkey's 3,500 or so tonnes in mattress gold remains outside of the banking system.

Gold on the CBRT's balance sheet - What does it actually own?

Gold is currently accounted for on the CBRT's balance sheet at 571.5 million grams, or 571 tonnes, putting it twelfth on the list of countries sorted by size of gold reserves. But one needs to be careful with this amount. Most of the gold on the CBRT's balance sheet is not the property of the bank, but rather is held on behalf of commercial banks that happen to be using the ROM facility. This amount needs to be subtracted from the central bank's total holdings to arrive at the total quantity of gold that officially belongs to the Turkish state.

The chart below decomposes the quantity of gold on the CBRT's balance sheet into two categories: 1) gold being held on behalf of banks to satisfy reserve requirements (blue area), and; 2) gold held as an official reserve asset (pink area). With the ROM being introduced in early 2011, banks went from holding 0 tonnes at the CBRT to holding as much as 417 tons by late 2014, after which ROM usage fluctuated to as low as 260 tonnes before rebuilding to today's 327 tonnes. Meanwhile, the amount of gold that the CBRT actually owns clocked in at a constant 119 tonnes from 2011 to 2017. This means that (until mid-2017) all of the changes in the gold portion of the CBRT's balance sheet has been due to varying commercial bank usage of the Reserve Option Mechanism, not official changes in Turkey gold ownership.

Gold on the CBRT's balance sheet, by type

Things changed in mid-2017 when Turkey finally began to buy gold on an official basis. Since then, gold holdings have more than doubled from 119 tonnes to 244 tonnes. This reportedly comes at the behest of PM Erdoğan, who seemingly has a soft spot for the yellow metal. (Ronan Manly has written an article showing how the location of those reserves has been changing.)

As for the Reserve Option Mechanism, it was further expanded in 2016 when the CBRT allowed banks to keep an additional 5% of required reserves in the form of wrought or scrap gold. The already-existing 30% ROM tranche, introduced in 2011, had only allowed for the usage of standard gold -- gold bars in a range of weights of minimum 995/1000 fineness as defined by the Borsa Istanbul. By allowing for scrap gold - unprocessed gold below 995/1000 fineness - to be used to satisfy reserve requirements, the CBRT was hoping to draw additional gold savings out from under people's mattresses and into the banking system. The scrap gold mechanism has not been very popular. According to the CBRT's 2017 annual report, at the end of 2017, only 17% of the head-room provided by the option was being utilized.

In an attempt to attract even more gold into the banking system, Turkish authorities began to issue gold bonds and gold-backed lease certificates to the public in 2017. The one-year interest rate on these bonds was 2.4%. The first round, which ran from October 2-27, 2017, attracted just 2.5 tons, while the second round, which ran from March 26 to April 20, 2018 period, brought in 1.9 tons. I've sourced these numbers from the CBRT's May 2018 Financial Stability Report. Given the small amounts of gold that have been collected by bonds and lease certificates, these efforts can only be considered a failure.

Conclusion

Turkey's campaign to mop up mattress gold hasn't been very successful. Neither the original 2011 Reserve Option Mechanism nor its 2016 extension to scrap metal have attracted large amounts of physical gold from the public. The recent attempts at pushing gold bonds and lease certificates on the public have also fallen flat.

Presumably the Turkish government will have to increase its efforts if it wants to put a real dent in the 3,500 tonnes of mattress gold presumed to be held by Turks. This may require a much larger ROM gold tranche or higher interest rates on gold bonds. As it is, the 2.4% paid on gold bonds simply hasn't enticed the public into giving up their gold. But using more resources to attract gold out from mattresses will only come at the expense of Turkish taxpayers. Is it worth it? If the effort to mop up Turkey's mattress gold does expand, at some point the presumed benefits of capturing mattress gold will be overwhelmed by the costs of overcoming people's fondness for the yellow metal.

How much Gold is in the FIFA World Cup Trophy?

Arguably the best known and most coveted trophy in the history of sport, the World Cup Trophy has a mythical status among elite footballers and sports fans alike, and its iconic shape and form are synonymous with the World Cup football tournament that takes place every four years.

For such a legendary trophy, it goes without saying that it could not have been made out of anything except gold.

Designed in 1970 by Italian Artist artist Silvio Gazzaniga and the Italian Stabilimento Artistico Bertoni trophy design company (now known as GDE Bertoni), the current World Cup Trophy, officially called the FIFA World Cup Trophy, made its first appearance in the 1974 World Cup held in former West Germany.

Brazil: World Cup winners 1994

Following Brazil's win of the World Cup competition in 1970, which added to their World Cup wins of 1958 and 1962, the previous trophy for the competition, known as the Jules Rimet Trophy, passed to the Brazilian Football Confederation in perpetuity. This was in line with a FIFA regulation at the time where a three-time winner earned the right to permanently keep the Cup.

A Universal Symbol

And so in 1970 FIFA embarked on a design tender to find a replacement trophy, receiving 53 submissions from sculptors around the world. Gazzaniga's winning entry, the now iconic trophy was, in his owns words, "a universal symbol", "inspired by two fundamental images: those of a triumphant athlete and of the world".

Gazzaniga's  vision for the trophy, he said, was to:

"reflect the elation of the winning footballer - a man transformed by the enormity of his victory - but without the super human ego. This sporting hero who embraces the world in his arms."

Silvio Gazzaniga's FIFA World Cup design, created in 1970

Of the actual sculpture, Gazzaniga explained that:

"The lines spring out from the base, rising in spirals, stretching out to receive the world. From the remarkable dynamic tensions of the compact body of the sculpture rise the figures of two athletes at the stirring moment of victory."

These spiraling lines, said Gazzaniga, would be:

“a human being - the hero - but not alone, because the game and every match is done by two teams, two wills opposing and acting together,”

“Energy, force, strength, dynamism, roughness, agility, speed, success, achievement, victory, triumph. All this had to turn around and embrace the world, who is over all and over every single man.”

Gazzaniga's sculpture was unlike any traditional sporting cups of the time, having a wide circular base that narrowed and then spiralled upwards in the form of two human figures with arms outstretched in celebration, holding a globe of the world resting on their shoulders, and made entirely of gold. Based on Gazzaniga's design, the FIFA World Cup Trophy was manufactured by the Milan based Bertoni design house in 1973.

France: World Cup winners 1998

Worth its Weight in Gold

The FIFA World Cup Trophy stands 36.8 cms tall with a base diameter of 12.5 cms. Overall it weighs 6175 grams (13.61 pounds) and has a gold content of 4927 grams (10.86 pounds) of 18 karat gold. The trophy is hollowed, since otherwise, being made of gold, it would be far too heavy to lift. The base of the trophy contains two layers of the dark green semi precious stone malachite.

Given that its 18 karat gold (meaning 18 parts gold to 6 parts of other metals, i.e. 75% gold), there are 3695.25 grams (118.8 troy ounces) of pure gold within the trophy. At a gold price of US$ 40 per gram at the time of writing, the gold within the World Cup Trophy has a current market value of approximately US$ 150,000. But as a unique sporting trophy, the FIFA World Cup Trophy is arguably priceless, so important that nowadays FIFA closely guards the original while presenting a replica to each winning country.

Germany: World Cup winners 2014

The choice of using gold to create the FIFA World Cup Trophy seems to have been a given. Nowhere within the history of the trophy or its design does it appear to be documented that there was any debate on what Gazzaniga's design should be made of. The choice of using gold just appears to have been the natural choice for such a unique and important sporting prize.

But this is not surprising. For gold is rare and precious. Gold has inherent value. Gold has been revered in countless civilizations throughout history and has long been associated with the divine sphere. Gold symbolises the pinnacle of human competition and achievement. Gazzaniga knew this when be designed the iconic trophy. FIFA knew this when they chose Gazzaniga's unique design. Every footballer who has ever played in a World Cup dreams of this golden prize.

Argentina: World Cup winners 1986

From 1974 to 2014, the FIFA World Cup trophy has been won 13 times. A unique quadrennial football event, in which thirteen elated winning captains have held aloft a World Cup made of gold, not of any other metal. Soon a fourteenth captain will do the same when the winner of the 2018 World Cup final becomes known on Sunday 15th July. And the iconic trophy made of gold will again be in the spotlight, a "universal symbol" as Gazzaniga put it, "at the stirring moment of victory."

Cashless Society, Negative Interest Rates and Hyperinflation – Part 2

Imagine a country in which banks hold virtually no cash at all. A country where if you walk into a bank branch, the clerk will not be able to help you make a deposit into your account. A country where there’s a good chance that if you grabbed a wad of cash and walked into an electronics store or a major nightclub, they wouldn’t be able to assist you in buying a new computer or giving you a drink.

Welcome to Sweden, the land of virtual cashlessness! Although the Swedish Riksbank recently launched a full array of new and very colorful bills featuring celebrities such as famous children's book author Astrid Lindgren and film director Ingmar Bergman, cash usage in Sweden is in absolute free fall, down from SEK 100 billion in 2010 to SEK 70 billion in 2015. Several factors have combined to lead to this development.

  • For many years now, most Swedes above the age of 16 use a VISA, Master or Maestro debit card to settle payments, even for small sums below $10.
  • Sweden is - and has been for many years - at the forefront of both developing and adopting new IT technology and is one of the most mobile phone dense countries in the world, with upwards of 60% of the Swedish population owning a mobile phone as early as 1999. 
  • The Swedes' willingness to adopt new technology is evident from the proliferation of a transfer system called ‘SWISH’. The SWISH app enables any two parties holding a Swedish bank account and a Swedish phone number to transfer money to each other instantly, all with no fees. Even merchants use SWISH to accept payments. There are homeless people selling newspapers in Sweden that accept payment via SWISH. In Stockholm, these homeless sellers have even been accepting credit card payments since as early as 2013 using a smart phone extension known as ‘iZettle’, also invented in Stockholm.  
  • Over the last few years, more than 70% of all bank branches in Sweden have gone cashless, meaning that if you walk into a bank branch in Sweden, there’s about a 70% chance (or higher) that they would not accept any cash you are trying to deposit.
  • In Sweden, there are virtually no payments made by cheques any more as banks stopped issuing cheque books years ago.

Tech loving Swedes

Some of these facts might sound unbelievable and even absurd for someone not living in Sweden: No cash in the bank? Homeless people accepting credit card payments?

But y es, Swedes seem extremely willing to accept new cashless payment technologies, such as credit/debit cards, as well as payment apps, while forgoing old ones, such as cash and cheques. All with little or no suspicion towards these new electronic payment methods.

Other countries have tried the same. Singapore tried, or at least planned to try a new electronic cash system named SELT or ‘Singapore Electronic Legal Tender’. In an OECD report issued in 2002, the Board of Commissioners of Currency (BCCS) - which was the sole currency issuing agency preceding the merger with MAS in 2002 - outlined the envisioned structure of the SELT system where the goal was said to be a reduction of physical cash usage and its handling costs.

As can be seen in the 2002 OECD report, the SELT system was in a very early conceptual stage and only outlined the concept in very broad strokes. But its interesting to note that as early as 1998, BCCS held a strategic planning seminar in which it set out its ‘corporate vision’ for the introduction of SELT within 10 years.

The 2002 report further stated that the SELT system was to be put in place in order to effectivize the cash currency system. The SELT system never came to fruition, and as is apparent  from statistics displayed further down in this article, the amount of cash currency circulating in Singapore has increased immensely since 2002. As have the amount of cash ATM machines, where there were far less than 2000 units at that time. The OECD report also mentions that although cash transaction costs in Singapore are extremely low, the cost to the economy of these ATMs was approximately SGD 656 million in 1998 and was projected to exceed SGD 1 billion by 2006.

BCCS envisioning a system such as SELT 15 years ago shows that they were ahead of their time and that Singapore government institutions are some of the very early adopters in trying to implement new technologies as well as eager to make their government institutions more effective. This is in line with the Smart Nation Objectives that Singapore has outlined. In contrast to Sweden, the Singaporean approach has been to adopt new payment methods such as e.g. card payments, while still being extremely welcoming for older payment modes such as cash or even cheques. Singapore's very safe environment with extremely low violent crime rates makes it a nation that conveniently lends itself to cash payments.

However, as absurd as it might sound, the abolition of cash is slowly unfolding in many countries, with Sweden is probably at the forefront of this trend. Although a majority of stores in Sweden still accept payment in cash, there are an increasing number who don't. Swedish law doesn't require a merchant to accept payment in cash, which is a bit ludicrous considering that cash is still legal tender in Sweden. After all, legal tender normally means that whatever is legal tender should be good for the payment of all debts.

Now, if a merchant doesn't want to accept cash in the form of nationally issued notes, then so be it. But what is shocking is that, as was mentioned at the beginning of this article, about 70-80% of all Swedish bank branches have removed all cash handling. All within just a few years. No, it's not a typo. Walk in to a random Swedish bank branch and try to deposit or withdraw a larger sum of cash and up to 80% of the time you'll get rejected with a polite "sorry, but this branch doesn't handle any cash".

Such branches only provide services such as financial advising, housing loans, credit cards services etc. The real aims of this strategy aimed to get money out of your pocket and into the pockets of the banks. Bank staff are pushed by their management to sell house loans, credit lines,  speculative paper instruments, and more savings accounts. This trend has also been evident in the extreme case of Wells Fargo's recent banking scandal involving the concept of cross-selling accounts with the goal of every Wells Fargo customer holding a minimum of eight Wells Fargo  accounts. Why? Because, in the words of former Wells Fargo's Chairman John Stumpf : 'Eight is great!'.

All this means that if you open an account at a Swedish bank branch, you can only fund your account by either going to a branch that does handle cash, or by transferring money to the new account from an already existing account.

During the last 5-10 years in Sweden, M0, which is an aggregate measuring the amount of physical cash in an economy, has collapsed from over SEK 100 billion down to about SEK 70 billion.

m0 sweden
M0 Money Supply in Sweden

In Singapore, cash money has increased from around SGD 21 billion in 2010 to SGD 33 billion in 2015.

m0singapore
Cash money in Singapore

Furthermore, statistics from the World Bank shows that the number for Automated Teller cash Machines has increased from less than 48 per 100K citizens, to more than 59 per 100k citizens in 2014. And the trend seems to be continually increasing.

ATMs in Singapore
Increasing number for ATMs in Singapore

The above data means that there are now more than 3200 ATMs island wide in Singapore as compared to less than 2000 units in 2004.

Cashless Means Less Crime!

One argument for making an economy totally cashless is that it would cripple crime. Crime syndicates, burglars, drug dealers, petty thieves all rely on an anonymous paper cash system to sell their contraband. If we just eliminated cash paper bills, then drug dealing, robbery, burglary, even tax fraud would almost totally disappear. Right?

One of the most avid proponents of a total cash ban is a famous Swedish musician by the name of Björn Ulvaeus. Ulvaeus, is known as a member and founder of the super group ABBA (that ironically wrote the song "Money, money money"). A few years back, Ulvaeus's son got robbed several times and some of his expensive music equipment was stolen. Ulvaeus' rationalse behind banning cash is that if there was no cash at all, but only electronically traceable payment systems, burglars would not be able to sell the stolen items on the black market, and as such, the theft would have never occurred.

Although slightly confused, Ulvaeus is still onto something. In two opinion articles published in a major Swedish newspapers a few years ago, he mentions barter and its limitations.

However, history shows time and time again that humans have overcome the limitations of barter in numerous ingenious ways. Be it through using precious shells, stones or metals - such as gold and silver - or be it through local and informal credit systems, the challenges of barter have always been vanquished as long as the need and demand for such a system exists.

For instance, cheques issued by the army and used by British soldiers stationed in Hong Kong in the 1950s, started to circulate as a cash currency. The faith and credit in these cheques among local merchants was universal, so why bother with the inconvenience of cashing them in when you could let your supplier do that instead. Anthropologist Keith Hart tells the story of his brother stationed in Hong Kong in the 1950s. Keith's brother was more than a little surprised when he one day he found a cheque signed by him 6 months earlier laying on the counter of a local bar with more than 40 other small signatures on the back stemming from each merchant that had legitimized the validity of the cheque. A game of confidence. A spontaneously arisen form of cash.

In jails, alcohol, sticks of cigarettes and more recently ramen noodles, are being used as currency. These goods arise spontaneously as the universally most sought after and can thereby be used as currency or money to buy anything else. No government, army, police or bank was needed to give these goods the status of money. They emerged spontaneously in the market place just as gold and silver have done so many times throughout history.

Today's banking system is therefore showing itself for what it really is: A pyramid scheme where your money is used to speculate in questionable asset classes whose value is propped up only by the very investors (banks) that are buying into these asset classes with the help of money emanating from an endless pool of credit fueled by central banks' artificially low or even negative interest rates.

Negative Interest Rates and Cashless Society: A Precursor to Hyperinflation?

When the negative interest rates of central banks spread to the commercial banks, a lot of people will naturally want to withdraw their money. As long as cash is readily available, this is not an issue. At least not as long as not everyone decides to withdraw their money all at once. But if cash use is highly limited, as per the example of Sweden, withdrawing your money will be hard or impossible. The resulting cashless or 'cash strapped' society is effectively hindering a bank run to happen, as this in reality gives the banks a debt cancellation or at least a massive debt forgiveness, because remember, the balance on your account is the banks debt owed to you. If there's no cash, then how can the bank pay its debt to you?

More on this in Part 3 of this series....

Sources:

http://www.oecd.org/futures/35391062.pdf
http://www.mas.gov.sg/currency.aspx
Debt: The First 5000 Years - David Graeber
http://www.scb.se/
https://www.riksdagen.se/sv/dokument-lagar/dokument/yttrande/nu2y_GN05NU2y

Singapore, Brunei, and the $10,000 banknote

In 2014, Singapore stopped printing the mammoth S$10,000 banknote, one of the world's largest value banknotes, citing "risks associated with large value cash transactions." Although it is no longer being printed, the S$10,000, which is worth around US$7,400, remains in circulation and continues to be accepted as legitimate legal tender. But once deposited in the banking system, all S$10,000 notes will be returned to the Monetary Authority of Singapore (MAS)—the institution responsible for issuing notes and setting monetary policy—to be destroyed. With no new ones being created, the supply of S$10,000 can be expected to steadily shrink.

The title of world's highest-denomination banknote in production now passes to neighboring Brunei, which issues the B$10,000, also worth about US$7,400. Brunei, a small nation on the island of Borneo with a population of 450,000, is the world's fourth richest country (ranked by GDP per capita) thanks to its oil & gas reserves. Interestingly, due to a long financial relationship between Brunei and Singapore, Brunei dollars are considered to be "customary tender" in Singapore (more on that later). So even as the S$10,000 is slowly phased out, the B$10,000 may still have a backup role to play.

Singapore $10,000 from 1980 (discontinued issue)

Singapore and Brunei have an agreement—the Currency Interchangeability Agreement—dating back to 1967 which obligates the monetary authority of each nation to accept the banknotes of the other nation at par with their own currency. Private Singaporean banks can thus safely accept Brunei dollar notes for deposit, knowing that the MAS will not only buy these foreign notes at a one-to-one rate with Singapore dollars but will do so without charging a fee. Vice versa with Bruneian banks.

Singapore dollar denominations

MAS ships all the Brunei paper dollars it receives back to Brunei. Likewise, the Autoriti Monetari Brunei Darussalam (AMBD), Brunei's monetary authority, flies Singaporean dollars back to Singapore. According to this 2017 article, MAS has sent some B$1.3 billion annually to AMBD over the last three years. This is actually quite a lot of cash. Recent data from the AMBD shows that there is only about B$1.26 billion worth of Brunei banknotes and coins in circulation, most of this in the form of the B$100 note. Given that B$1.3 billion is shipped back each year to Brunei, the entire stock of banknotes circulates through Singapore once-a-year. Incredible!

While the B$100 note is the most popular Bruneian denomination, this hasn't always been the case. Through late 2011 and 2012, demand for the gigantic B$10,000 note exploded to B$1.5 billion, up from its regular level of around B$50 million. This spike was so marked (see below) that the entire supply of Bruneian banknotes effectively doubled, a situation that lasted until 2013 when a large quantity of B$10,000 banknotes were redeposited into the banking system. There is no indication what caused this pattern.

Brunei's money supply since 2011

As I mentioned earlier, the Singapore-Brunei Currency Interchangeability Agreement describes each counterpart's banknotes as "customary tender", differentiated from "legal tender." In Singapore, all currency notes and coins issued by the MAS are deemed legal tender. This means that any debt or transaction can be settled using MAS-issued banknotes, although if a payee (the person taking a payment) notifies a payer ahead of time, they can choose to avoid using legal tender and settle on an alternative means for transacting, say gold or euros. Since Brunei dollars are only customary tender, there is no default legal obligation on the part of retailers to accept them.

Modern $10,000 Brunei banknote

While many retailers in Singapore accept Brunei dollars, not all do. Offending retailers can be reported to MAS. And when they are reported, they usually comply.  Presumably this acceptance isn't forced on retailers, since Brunei dollars aren't legal tender, but is asked of them in good faith. Come on guys, take one for the team.

The monetary relationship between Brunei and Singapore is an old one. Prior to their independence, Malaysia, Singapore, and Brunei were all members of British-run currency board, the Board of Commissioners of Currency, Malaya, which issued Malayan dollar banknotes. The Board of Commissioners was initially established in 1899 by the British colonial authority. A currency board is a monetary system in which the issuer of banknotes (and deposits) maintains a 100% reserve for the liabilities it has issued. In the case of the Malaya currency board, this reserve consisted entirely of assets denominated in British pounds. The advantage of a 100% reserve is that there is no way that the peg can break, so investors needn't worry about exchange rate fluctuations.

1941 note issued by the Board of Commissioners of Currency, Malaya

Already merged on a monetary level, Malaysia and Singapore embarked on a post-independence political merger in 1963, but this political union fell apart in 1965. Ongoing distrust of the Malaysian administration by Singapore led to the abandonment of the currency board arrangement in 1967, with Malaysia, Singapore, and Brunei all issuing their own currencies for the first time. The three then drew up the Currency Interchangeability Agreement, obligating each to accept the others' banknotes at par, but Malaysia dropped out in 1973, leaving Brunei and Singapore. And this is how things stand to this day.

While the Singapore dollar is no longer based on a currency board—the MAS operates what is referred to as a managed float regime—the Brunei dollar continues to be operated on the principles of the old currency board. Rather than pegging to the British pound, the AMBD fixes the Brunei dollar against the Singapore dollar. However, the AMBD does not operate an orthodox currency board because it maintains a slightly-less-than full reserve of Singaporean dollar assets.

The monetary relationship between Singapore and Brunei constitutes a currency union, much like the Eurozone. In the same way that the European Central Bank calls the shots for the group of euro-using nations, the MAS is in charge of the Singapore dollar zone. Brunei is a passenger in this relationship, much like how Greece is along for the ride in Europe. Put differently, whereas Greece imports the monetary policy of a much more powerful authority, the ECB, Brunei imports Singaporean monetary policy.

Which brings us back to the $10,000 note. The denomination structure of Bruneian coin and note issue is the one bit of monetary sovereignty that Brunei gets to control. And since the Interchangeability Agreement obligates Singapore to accept all Brunei banknotes, Singapore effectively imports the denomination policy of its smaller neighbour. The $10,000 note is dead, long live the $10,000 note!

 

To understand the history behind the Brunei-Singapore monetary relationship, I relied on the following sources:

  1.  MAS Macroeconomic Review, April 2017. Pgs 73-76 [link]
  2. The Malayan Currency Board, 1938-1967. By Josephine George, 2016 [link]
  3. The Dissolution of a Monetary Union: The Case of Malaysia and Singapore 1963–1974. By Catherine Schenk, 2013 [link]
  4. Second separation: Why Singapore rejected a common currency with Malaysia. The Strait Times, May 24, 2016 [link]

 

BullionStar accepts cash payment, including the SGD 10,000 for bullion purchasesBullionStar accepts cash payment, including the SGD 10,000 note, for bullion purchases

Investing in the Noble Metal of Platinum

Along with gold and silver, platinum is a recognized investment precious metal which is fabricated in the form of high quality bullion bars and bullion coins by some of the world's leading precious metals refineries and mints.

Importantly, as a recognized investment precious metal, platinum bars and platinum coins from these refineries and mints are exempt from Singapore's Good and Services Tax (GST). This means that there is no GST to pay when you buy platinum bars and coins from BullionStar in Singapore.

Platinum's High Intrinsic Value

Like gold, platinum is relatively scarce and has a relatively high intrinsic value and market value. And like gold and silver, platinum also has many industrial and technological applications. Platinum's value is thus based on a combination of its scarcity of supply and also on its physical and chemical properties. These properties in turn drive the diverse global demand sources for platinum across sectors such as the automotive, industrial and jewelry industries in addition to the investment sector.

For example, platinum has well-known catalytic properties which allow it to speed up chemical reactions without it being altered in the process. Hence platinum is used in autocatalysts, in the chemical industry and in fuel cells. Platinum is also a very strong attractive metal that does not corrode and that is both ductile and malleable, hence it is a very popular precious metal in the jewelry industry. Since platinum is resistant to corrosion and oxidation, it is classified, along with a small number of other metallic elements, as a noble metal.

Platinum - A Noble Metal
Platinum - A Noble Metal

Platinum is a relatively scarce metal in the earth's crust and even rarer than gold. In contrast to gold, annual platinum supply and platinum demand is far lower than annual supply and demand in the gold market. According to Thomson Reuters GFMS, supply of platinum in 2016 totaled 7661,000 ozs (238 tonnes) of which 188 tonnes came from platinum mining with a further 50 tonnes was derived from autocatalyst and platinum jewellery scrap recycling.

Within platinum extraction and mining, over 70% of global mine supply comes from South Africa, with a further 12% from Russia, 7% from North America, and the remaining 10 - 11% from elsewhere. South Africa's dominance of global platinum supply is also evident in the composition of the recently established World Platinum Investment Council (WPIC) which is a platinum investing advocacy association founded by six South African platinum mining companies, namely Anglo-American, Lonmin, Implats, Aquarius, Northam, and Royal Bafokeng.

On a country specific basis, platinum mining's concentration in a handful of countries can sometimes set up supply shocks, for example, platinum mining strikes in South Africa or geo-political risks/sanctions concerning Russia. These shocks can at times affect platinum prices to the upside.

On the demand side, according to GFMS, autocatalysts are the largest global demand driver for platinum. For example, autocatalysts accounted for 102 tonnes of platinum demand in 2016 followed by jewellery (68 tonnes) and other industrial applications (57 tonnes), with investment (bars, coins and platinum-backed Exchange Traded Funds) accounting for the remaining 16.8 tonnes.

Note that in its pure form, platinum is available as platinum grains (used in the jewelry sector) and as platinum sponge (used in industrial applications) in addition to platinum bars and coins. However, other forms of platinum are designed for further onward processing and should not be confused with investment-grade platinum. For investment and storage purposes, refineries and mints will always produce platinum in the form of platinum bars and platinum coins, and furthermore, only bars and coins from recognized refineries and mints can be classified as investment precious metals and be exempt from Goods and Services Tax (GST).

Heraeus Minted Platinum Bars
Heraeus Minted Platinum Bars

Singapore GST Exemption for Investment Platinum Bars and Coins

Since October 2012, the Singaporean Government has exempted Investment Precious Metals (IPM) from Singapore's Goods and Services Tax (GST). To qualify as IPM, precious metals must be in the form of a bar, ingot, wafer or coin which meets specific criteria. Platinum bars qualify as IPM in Singapore if the platinum bar has a platinum purity of at least 99%, can be traded on an international bullion market, and is produced by a platinum refiner listed on the current or former Good Delivery list of the London Platinum and Palladium Market (LPPM).

The LPPM is a London-based trade association for the global wholesale platinum and palladium markets. There are currently more than 30 refineries on the current LPPM Good Delivery List for Platinum including such refineries as Heraeus of Germany, Johnson Matthey of the UK, and the four large Swiss precious metals refineries Argor-Heraeus, PAMP, Valcambi, and Metalor.

Investment grade platinum bars produced by accredited refiners will generally carry the name of the refiner or refiner stamp or brand on the bar. If a refinery has the LPPM accreditation, the Singaporean IPM rules assume that the refinery's bars are capable of being traded on an international bullion market. Some platinum bars may in turn bear the name of a specific bank such as Credit Suisse or UBS. These bars are known as bank-branded bars and these bars also qualify as IPM if produced by a refiner on the LPPM Good Delivery List.

For platinum coins, a GST exemption applies if the coin is a bullion coin, has a platinum purity of at least 99%, and is listed on the GST schedule list of qualifying coins. Qualifying platinum coins include:

  • Royal Mint Platinum Canadian Maple Leaf
  • US Mint Platinum American Eagle
  • Austrian Mint Platinum Philharmonic
  • Perth Mint Platinum Platypus and Platinum Koala
  • Royal Mint Platinum Britannia, Platinum Lunar and Platinum Queens Beast

Physical platinum investment bars and coins are very popular in markets such as the US, Japan, China and the rest of Asia, and the market is a growing one on the back of the existing popularity of high quality platinum jewelry in these markets.

Platinum Bullion Bars

BullionStar's range of investment grade platinum bars is extensive and features platinum bars in a number of weights from the world's most prestigious platinum refineries. All platinum bars offered by BullionStar are exempt from Singapore's Goods and Services Tax as all bars have a platinum purity of 99.95% and are fabricated by platinum refineries such as Valcambi of Switzerland, Heraeus of Germany, and Argor-Heraeus of Switzerland. All of these refineries are listed on the current LPPM Good Delivery List for Platinum and additionally all of these refineries are also full members of the LPPM. Popular weights for platinum bars stocked by BullionStar include 1 kilogram, 500 grams, 100 grams and 1 oz.

Credit Suisse minted Platinum bar
Credit Suisse minted Platinum bar

For example, Valcambi produces a 1 oz minted platinum bar which is presented in its own secure blister pack which doubles as the bar's assay card. The Heraeus refinery of Germany produces minted platinum bars in a range of weights from a 100 gram minted platinum bar, through 500 gram minted platinum bars, and up to a 1 kilogram platinum bar. Swiss refiner Argor-Heraeus, now fully owned by Heraeus of Germany, fabricates its own minted platinum bars with the distinctive Argor-Heraeus logo, for example the Argor-Heraeus 1 kilogram minted platinum bar.

BullionStar at times also carries bank-branded platinum bars, such as a Credit Suisse 100 gram platinum bar which has been produced by Swiss refiner Valcambi on behalf of the Swiss Bank Credit Suisse. These platinum bars are also GST exempt in Singapore as they have been fabricated by a refiner, Valcambi, which is on the LPPM Good Delivery List for Platinum. Valcambi has in the past had a very close connection with Credit Suisse and was at various stages both fully-owned and partially owned by Credit Suisse.

Platinum Bullion Coins

Most of the world's best-known national precious metals mints produce a bullion coin in pure platinum. These include platinum coins from the Royal Canadian Mint (RCM), Austrian Mint, US Mint, and the Perth Mint. All of these mints are fully owned by their respective national governments and all of these mints stand over the authenticity and quality of their bullion coin products.

Some platinum bullion coins are produced every year, and some are produced with more sporadic production runs. Many of the bullion platinum coins offered by BullionStar are in similar designs to their gold and silver coin counterparts and are issued in the convenient and standard 1 ounce weight. All of these platinum bullion coins are also legal tender (non-circulating) in their countries of issue.

For example, the Royal Canadian Mint produces a 1 ounce Platinum Maple Leaf with the distinctive maple leaf design. This design will be familiar to investors in the Royal Canadian Mint's Gold Maple Leaf and Silver Maple Leaf coins. RCM Platinum Maple Leafs are produced on an annual basis, including the years 2018, 2017, and 2016.

Royal Canadian Mint 1 oz platinum Maple Leaf
Royal Canadian Mint 1 oz platinum Maple Leaf

The Austrian Mint also issues a 1 oz Platinum Philharmonic bullion coin each year which is intricately designed with highly-stylized motifs celebrating the world-famous Vienna Philharmonic orchestra.

Those who invest in silver and gold Eagle bullion coins from the US Mint will also be interested in the US Mint's flagship 1 oz Platinum Eagle bullion coin which is handsomely designed with imagery of the Statue of Liberty and a soaring American Eagle. The Platinum Eagle, which was first released in 1997, is the only platinum coin ever officially issued by the US, and has the highest face value (US $100) ever to appear on any US coin.

The Perth Mint's has produced a number of platinum bullion coins over the years although not in all sequential years. From 1988 to 2000, the Perth Mint issued a Platinum Koala bullion coin in a number of weight denominations. Then in 2011, the Mint began issuing its flagship 1 oz Australian Platypus Platinum coin. Production of the Platypus Platinum coin continued until 2017 when it was superseded by the Perth Mint's Australian Platinum Kangaroo coin 1 oz bullion coin.

Another option offered by BullionStar for those who wish to begin saving and investing in platinum is the Bullion Savings Program (BSP). With BullionStar's BSP, customers purchase grams of platinum, gold or silver which are fully-backed by physical precious metals held in BullionStar's stock inventory. These metal grams are available for a low price premium and low spread and are therefore a cost-efficient way to begin saving in precious metals. The metal grams can also be converted in precious metals bars once sufficient grams have been accumulated.

For example, with the Platinum Bullion Savings Program,  customers can purchase grams of platinum that are fully backed by platinum held in BullionStar's inventory. BSP platinum grams have a low-cost storage fee, and can be converted into 1 kg Heraeus Platinum bars at no extra cost. These bars can then be held by customers in BullionStar's Vault Storage, or physically withdrawn and delivered. Alternatively, investors in BSP platinum grams can sell their platinum grams back to BullionStar at any time.

Gold and the Monetary Blockade on Iran

This blog post is a guest post on BullionStar's Blog by the renowned blogger JP Koning who will be writing about monetary economics, central banking and gold. BullionStar does not endorse or oppose the opinions presented but encourage a healthy debate.

With Donald Trump close to re-instituting economic sanctions on Iran, it's worth remembering that gold served as a tool for skirting the the last round of Iranian sanctions. If a blockade were to be re-imposed on Iran, might this role be resuscitated?

The 2010-2015 Monetary Blockade

The set of sanctions that the U.S. began placing on Iran back in 2010 can be best thought of as a monetary blockade. It relied on deputizing U.S. banks to act as snitches. Any U.S. bank that was caught providing correspondent accounts to a foreign bank that itself helped Iran engage in sanctioned activities would be fined. To avoid being penalized, U.S. banks threatened their foreign bank customers to stop enabling Iranian payments or lose their accounts. And of course the foreign banks (mostly) complied. Being cut off from the U.S. payment system would have meant losing a big chunk of business, whereas losing Iranian businesses was small fry.

One of the sanctioned activities was helping Iran to sell oil. By proving that they had significantly reduced their Iranian oil imports, large importers like Japan, Korea, Turkey, India, and China managed to secure for their banks a temporary exemption from U.S. banking sanctions. So banks could keep facilitating oil-related payments for Iran without being cut off from the dollar-based payments system. The result was that Iran's oil exports fell, but never ground to a halt. This was a fairly balanced approach. While the U.S. wanted to deprive Iran of oil revenue - which might be used to build nuclear weapons - it didn't want to force allies to do entirely without necessary crude oil.

The U.S. Iran Threat Reduction & Syria Human Rights Act of 2012 (TRA) further tightened the noose. The TRA prevented Iran from repatriating any of the oil & gas funds that were accumulating in foreign escrow accounts maintained in Turkey, Japan, and elsewhere. To enforce this restriction, any bank proven to repatriate Iranian oil money would be cut off by its U.S. correspondent bank, thus losing its connection to the U.S. banking system.

The inability to unlock funds was inconvenient for Iran. There was no useful purpose to which the pariah nation could put all the Japanese yen, Indian rupees, Chinese yuan, or Turkish lira that was piling up in its overseas escrow accounts. Iran could still buy non-sanctioned goods and services in these countries and bring them back to Iran, say food, medicine, and whatnot. But none of the oil-importing nations provided Iran with enough importable stuff that it could draw its account balances down to zero. The funds held in escrow were dead money.

Gold Enters the Scene

This is where gold was recruited as a useful payments rail for evading the sanctions. The scheme was carried out primarily through Turkey. Gold dealer Reza Zarrab, one of the most well-known expediters of the scheme, designed an escape hatch for Iranian funds along with bank officials at Halkbank, a Turkish state-owned bank. Iranian funds frozen in a Halkbank escrow accounts (denominated in Turkish lira) were transferred to accounts held at Halkbank by Zarrab's shell companies and used to buy gold in the Turkish gold market.

This technically was not illegal. While an earlier set of sanctions had prohibited banks from directly helping the Iranian government to deal in gold, it was still legal for them to help “private” persons to access gold, as long as the gold was sent to Iran and not elsewhere. Zarrab sent some of this gold directly to Iran. The rest was exported to Dubai where it was sold for dollars, the cash being returned to Turkey where Zarrab laundered it back into the banking system. Now the Iranian government could finally make use of it. Below is a chart that Zarrab made at his 2017 court trial that illustrates the complexity of the gold trade.

"Iranian gold transaction," an illustration of Zarrab and Halbank's method for moving Iran's frozen funds (source)

This size of this loophole was significant. According to Reuters, Turkish gold exports to Iran exploded from one tonne in 2011 to 125.8 tonnes in 2012, worth $6.5 billion. Another $4.6 billion was sent to Dubai, most of this ultimately destined for Iran. Below I've charted Turkish gold exports from 2008 to present. You can see the big bulge in 2012-13.

The large inflow of Turkish gold helped keep Iran afloat. It was only in mid-2013 that the "private person" loophole was finally cut off. Banks like Halkbank, which before could only be penalized for engaging in gold dealings with the Iranian government, were now prohibited from enabling gold payments for private Iranian entities as well. Gold shipments out of Turkey slowed to a trickle.

Turkish Gold Exports: 2008 to Present (millions US$)

While Zarrab continued to illegally export small amounts of gold, he focused on a different form of sanctions busting: moving Iranian funds locked in Turkey to Dubai by using fake invoices for food and medicine as cover. But this too came to an end. During a visit to Disney World with his family in 2016, Zarrab was arrested and accused of helping Iran evade U.S. sanctions. In late 2017, he accepted a plea agreement and became the key witness against a number of Halkbank officials and Turkish government officials. Only one of them, Mehmet Atilla, has been convicted to date, the rest remain at large.

The Advantage of a High Value-to-Weight Ratio

In theory, the funds held in Iran's escrow accounts at Halkbank could have been used to buy any sort of commodity, say copper, and then the copper shipped to Iran (or Dubai). The reason that gold was probably chosen as the in-between commodity is because it has a higher value-to-weight ratio than most commodities. Whereas an ounce of gold conveys $1300 in value, it would have required around 6,500 ounces of copper to convey $1300 in value. The extra bulk involved would have been very costly to ship.

Value-to-weight ratios (source)

Another advantage of gold relative to other commodities is that it is highly liquid. There are markets for the yellow metal all over the world that attract the participation of a wide range of buyers from consumers to industrial users to jewelers. Copper is much less marketable. Because Iran needed to on-sell whatever commodity was being used as the in-between commodity in order to get hard currency like euros and dollars, gold would have been the most convenient option.

A Monetary Blockade in 2018?

The monetary blockade that began in 2010 was eventually successful. Iran was forced to come to the negotiating table and in 2015 the Iran nuclear deal was signed. Zoom forward to today. Trump has left the nuclear deal and is threatening to reimpose sanctions against Iran. Could gold once again become a player in the game played between sanctioner and sanctioned?

One major difference between then and now is that there was significant global buy-in during the last round of sanctions. Prior to setting up the monetary blockade, the U.S. gained support from the United Nations Security Council, including China and Russia. So while certain loopholes were exploited, a broad consensus meant that evasion was not prevalent enough to bring the whole edifice down.

In exiting the Iran deal last month, Trump has done so alone. Presumably this lack of consensus will make any ensuing round of sanctions much more leaky than the initial ones. India, for instance, has already said that it won't comply with the sanctions because they are not UN-mandated. Now, in actuality there probably isn't much India can do to escape the sanctions. The majority of Indian banks will comply because they will be wary about the threat of being cutoff from the dollar-based payments system.

But with a wink and a nod from their national governments, a few banks who don't do much U.S. business may decide to take Iran on as a customer. They will need some sort of popular medium for expediting payments to and from Iran, say gold, euros, bitcoin, or an up-and-coming national currency such as the Chinese yuan. It remains to be seen which one would be selected, but gold certainly has a number of useful properties, as evidenced by the last round of sanctions. Whatever the case, the U.S. dollar's dominant role as a global medium of exchange can only be weakened by another round of Iran sanctions.

Sources used to write this post:

  1. Iran’s Turkish connection, Reuters, 2014 (pdf)
  2. Aggressive U.S. Monetary Policy... in Iran, 2012 (Moneyness blog)
  3. United States of America vs Reza Zarrab et al, 2017 (pdf)
  4. United States of America vs Mehmet Hakan Attila, 2018 (pdf)
  5. Iran's Gold Loophole, 2013 (pdf)
  6. Sanctions Against Iran: A Guide to Targets, Terms, and Timetables, 2015 (pdf)
  7. The Beauty of TRA Section 504, 2015 (Sanctions Law blog)
  8. OFAC FAQs: Iran Sanctions (US Treasury website)
  9. Exiting the Iran deal is a blow to financial transparency and US control, 2018 (Interfluidity blog)

The future of Cash: Iceland vs Sweden

This blog post is a guest post on BullionStar's Blog by the renowned blogger JP Koning who will be writing about monetary economics, central banking and gold. BullionStar does not endorse or oppose the opinions presented but encourage a healthy debate. 

The poster child of a cashless society is Sweden. There are all sorts of anecdotes about beggars accepting cards, churches passing around mobile payments devices instead of collection plates, and banks no longer providing customers with cash. It is no wonder then that Sweden is the only country in the world to show a decline in banknotes and coins in circulation, the quantity of cash outstanding having fallen from 109 billion SEK in 2006 to 56 billion SEK in 2018. If you want to read more, I wrote about the Swedish miracle on my Moneyness blog here.

The death of cash scenario portended by Sweden is contradicted by another Nordic nation, Iceland. If Sweden is close to the forefront of the cashless revolution, Iceland is not only ahead of it but at the very front of the pack. No country does more point-of sale payments per capita than Iceland, clocking in at 426.9 in 2016. Whereas Sweden has an incredibly low cash-to-GDP ratio  of around 1.75% , Iceland was already all the way down to an impressive 1.2% by the early 2000s! (The cash-to-GDP ratio is the number of banknotes and coins outstanding at the end of the year divided by yearly GDP. I get these numbers here).

One would probably be safe in assuming that, like Sweden, Iceland is characterized by a steady decline in banknotes and coins outstanding. But this isn't the case, as the chart shows below.

Since the 2008 credit crisis, Iceland has seen a tremendous resurgence in the demand for cash. Not only is the rate of growth in króna notes and coins in circulation far exceeding that of Sweden, but as the chart below illustrates, it is also far ahead of euro cash growth. As for Iceland's cash-to-GDP, it has doubled to around 2.4% since the crisis, which means that the island nation is now more cash intensive than Sweden.

Demand for cash in Sweden, Iceland, and Europe

What is happening? It may be useful here to borrow from a recent Bank for International Settlements (BIS) paper Payments are a-changin’ but cash still rules and differentiate between means-of-payment and store-of-value demand for coins and banknotes. It is unlikely that the resurgence of Icelandic cash demand is due to payments needs. Rather, I'm going to show that it is probably due to the latter type of demand, store-of-value. This sort of demand occurs when people indefinitely lock away a few extra bills in a safe as opposed to putting them in their wallets for tomorrow's grocery run.

The easiest way to try and determine when cash is being held as a store-of-value or a means of payment is to observe the denomination structure of coins and banknotes. In theory, larger-denomination notes, which are less cumbersome, are mostly held as a store of value whereas smaller ones will tend to be used in payments. Below I've charted the evolution of Iceland's denomination structure over time.

Iceland's coin and note denomination structure since 2001

You can see that growth in low-denomination banknotes and coin slightly exceeded growth in higher denomination notes until the 2008 financial crisis, at which point the demand for high denomination banknotes exploded. In 2013 the Central Bank of Iceland even introduced a new note, the 10,000 krónur (currently worth around US$96), to meet Icelander's growing store-of-value requirements.

According to the BIS paper, one factor that drives the demand for notes as a store of value is the level of interest rates. If you choose to hold cash, you're losing out on interest, but the lower the interest rate the smaller your loss and the more attractive a large-denomination banknote gets. Indeed, the BIS report finds that lower interest rates all across the world explain a large part of the post-crisis global thirst to hold high denomination banknotes like the €500 note, 1000 Swiss franc, ¥10,000, or US$100, as illustrated in the chart below. This may be the case in Iceland too, since rates have fallen quite a bit since 2008.

From the BIS report "Payments are a-changin’ but cash still rules"

Iceland is somewhat unique because of the terrific damage sustained by its banks during the credit crisis. All three--Kaupthing, Glitnir, and Landsbanki--went bankrupt. Prior to the crisis Landsbanki had established a banking presence in the UK and Netherlands. Iceland's government refused to meet its deposit insurance commitments for these foreign customers while protecting Icelanders. The crisis revealed that the safety of both Iceland's banks and its deposit guarantee scheme were less assured than most had previously thought. This may explain some of the explosion in hoarding of Icelandic banknotes. Notes, after all, are a direct promise of the government and are free from the sort of default risk that bedevils a private deposit.

In addition to having a financial incentive to hold more banknotes, Icelanders also have emotional reasons for doing so. They are resentful of bankers, who are rightly viewed as the ones most responsible for placing Iceland in such a precarious position on the eve of the '08 financial crisis. Some 26 bankers have received sentences of up to five years, which makes Iceland the only nation to have imprisoned bankers for their role in the crisis. The country has even flirted with the idea of sovereign money, a monetary system in which private banks can no longer issue money, abdicating that role to the the state.

Iceland Magazine, 2015 (source)

In this context, it is no wonder that demand for high denomination banknotes is growing. Angry Icelanders can register their protest votes against the banking system by storing five 10,000 kronur notes under their mattress for a rainy day instead of holding 50,000 krónur in a low-yielding savings account.

To sum up, Iceland and Sweden are both leading the world in digital payments. Yet while Sweden hints at a world in which digital payments lead to cash's demise, Iceland tells us something different. Even in a world where everybody pays with a card or an app, people may still want access to old-fashioned cash. First, banknotes and coins are still useful in a number of payments situations, say when payments systems have gone down or in coin-operated laundry machines. In Iceland's case, this is confirmed by continued growth in small-denomination banknotes and coins outstanding, which are keeping up with GDP growth.

The 10,000 krónur note, introduced in 2013

But even more importantly, Iceland shows that banknotes--in particular large denomination ones--are a universally available ultra-safe investment. It took a crisis for this to be evident, since when times are normal people are quite content to hold riskier bank-issued claims on banknotes. Other government instruments like t-bills and bonds also provide the same degree of safety as a banknote. But these require a degree of financial sophistication to purchase, and are thus less accessible than cash, which is widely available and easy to buy.

As policy makers navigate the future of cash, in particular that of high denomination banknotes, the Swedish model has become a much discussed benchmark. But it would be irresponsible of policy makers if they failed to consider its fellow Nordic nation, Iceland, as an equally informative model.

Customer Order Number 100,000 at BullionStar

As part of its continued growth and success, BullionStar has recently fulfilled its order number: 100,000. To mark this significant milestone, BullionStar issued a 2.5 gram PAMP Gold Bar to the lucky BullionStar customer in question. The customer order was placed by Mr. Ito from Japan, who was on holiday recently in Singapore with his wife when he visited BullionStar's shop and showroom in central Singapore.

Mr. Ito said he was delighted with the PAMP gold bar prize and commented that he was very lucky on what was his first visit to BullionStar. He also returned the following day to make further purchases. Mr. Ito also liked the easy to locate BullionStar showroom, the competitive bullion prices, and the fact that the many bullion display cases make comparisons easy when selecting products.

BullionStar COO, Mr Luke Chua, presents a PAMP gold bar to Mr. Ito of Japan who placed order number 100,000 with BullionStar.

Established in 2012

This latest milestone is one of a continuing series of notable milestones for BullionStar since its establishment in Singapore 6 years ago. During this time BullionStar has gone from strength to strength and is now firmly established as the best bullion dealer in Singapore and the Asian region, as evidenced by BullionStar recently winning Bullion Directory's bullion dealer of the year award, as well as one of the most recognised bullion dealers internationally with customers from over 100 countries around the world.

Upon establishment in 2012, BullionStar's offices were initially located in the Marina Bay Financial Centre in the downtown Central Business District (CBD) of Singapore. Prior to 2012, BullionStar's founders were already familiar with the bullion dealer sector having set up several bullion dealers such as the Swedish company Liberty Silver AB. 

BullionStar's launch in Singapore in 2012 came as the Singaporean Government introduced a Goods and Services Tax (GST) exemption on transactions in investment precious metals (IPM). The GST exemption on IPM means that any time customers purchase qualifying bullion bars and bullion coins from BullionStar, the prices paid are free of GST, since there is no sales tax to pay. Other compelling reasons for establishing a bullion and storage operation in Singapore included the fact that Singapore is one of the safest countries in the world and has a stable jurisdiction, a strong rule of law, no reporting requirements on any bullion transactions, and a government which supports the growth and development of the bullion industry.

BullionStar's philosophy as a leading bullion dealer is grounded in innovation, internationalization, and constant evolution, both in-store and on-line. In January 2013, BullionStar launched its fully-transactional online trading platform, allowing customers around the world to buy and sell precious metals bars and coins at the click of a button on the BullionStar.com website.

In July 2014, BullionStar opened its current shop, showroom and integrated vault in central Singapore at 45 New Bridge Road, adjacent to both Clarke Quay MRT, and Singapore's Central Business District (CBD), as well as less than minutes walk from Singapore's Chinatown. This spacious showroom, with over 20 display cases, allows customers to browse and purchase a huge variety of gold bars, silver bars, gold coins and silver coins from the world's leading precious metals mints and refineries.

With BullionStar's secure precious metals vault integrated into the shop and showroom, customer purchase orders for precious metals can be immediately dispatched in the shop, and customers can also view and audit their precious metals holdings held in storage in the vault.

The Widest Range of Precious Metals Products

BullionStar now stocks one of the widest ranges of precious metals bullion products in the world, sourced from all of the world's leading precious metals mints and refineries, with over 600 different products across 10 product categories. These products include gold bullion coins and silver bullion coins from leading national mints such as the Royal Canadian Mint, US Mint, Perth Mint, Royal Mint and Austrian Mint, coins such as Gold and Silver Maple Leafs, Gold and Silver Eagles, and Gold and Silver Kangaroos. BullionStar's wide range of gold bars and silver bars is sourced from prestigious precious metals refineries such as Heraeus of Germany, PAMP and Argor-Heraeus of Switzerland, and from national mints such as the Perth Mint and the Royal Canadian Mint.

Gold Kilobars
PAMP Gold Kilobars available from BullionStar

In 2015, BullionStar also launched it's now very popular BullionStar branded gold bar and silver bar range. These products, the BullionStar 100 gram Gold Bar, produced by Argor-Heraeus of Switzerland, and the BullionStar 1kg Silver Bar, produced by Heraeus of Germany, can be traded without any spread between the buy price and the sell price.

As well as the comprehensive range of gold, silver and platinum bullion bars and coins, BullionStar also stocks a wide selection of gold and silver collectible and numismatic coins, a range of gold bullion jewelry, and a wide array of coin related products for storing and correctly handling and displaying your precious metals coins and bars.

Secure Storage in one of the Safest Countries in the World

BullionStar provides full service operations in all aspects of bullion sales, storage and other services. Opening a BullionStar account can be undertaken in a matter of minutes, and purchasing bullion either in the shop and showroom or online on the BullionStar website is a simple and intuitive process. Customers purchasing precious metals bars or coins can opt to pick up their purchases in person, have their products delivered to their address, or have their precious metals stored in BullionStar's secure vault facility which is integrated into the shop and showroom premises.

BullionStar's secure precious metals storage solution goes far beyond just storage of precious metals as it provides full online control allowing customers to buy, sell, physically withdraw or physically audit their bullion at any time. With Bullionstar's Vault Storage, customers can generate vault certificates online, view pictures of stored bullion, generate a live audit report of metal that they hold in storage, and view certificates evidencing vault insurance.

Metal grams held in vault storage through the BullionStar Savings Programs (BSP) can also be converted into either gold bars, silver bars or platinum bars, and can then either be held in storage or withdrawn and delivered.

Consistently Profitable and Strong Revenue Growth

Although the precious metals markets are at time opaque and closed to transparent information flow, BullionStar pursues a policy of transparency and openness as regards its operations, financial results and investor relations. BullionStar publishes highlights of its annual performance on its website with full commentary and infographic analysis. Customers therefore have visibility around BullionStar's revenues and product mix and can be confident about the company's financial standing and stability.

It's notable that BullionStar has grown revenues strongly in every financial year of operations. BullionStar's financial year (FY) runs to 30 June each year. In FY 2014, BullionStar recorded revenues of SGD 44.1 million. For FY 2015, revenues grew 43.8% to SGD 63.4 million. Revenues then almost doubled year-on-year  in FY 2016, rising to SGD 129.2. For the latest financial year, FY 2017, BullionStar recorded revenues of SGD 174.7 million, which was 35.2% higher than FY 2016.

This very strong and solid revenue growth means that BullionStar revenues have more than quadruped between FY 2014 and FY 2017, growing by a staggering 422% over that time. This revenue growth is a testament to strong and loyal customer order growth and underpins the growth and stability of BullionStar's operations over the period since its inception.

Order Number: 100,000 

Recognition, Media Interest, and Research and Analysis

In another sign of BullionStar's continued growth and recognition, this year BullionStar won the inaugural award of "Bullion Dealer of the Year" Rest of World category in The Bullion Directory's annual bullion awards. These awards are recognised and valued throughout the global bullion industry, and BullionStar secured its victory after nomination and public voting against many bullion dealers from across the globe.

Since its establishment, BullionStar's precious metals articles, blogs, research and infographics analysing the gold and silver markets have become well-known and highly-regarded around the world, with blogs and analysis from precious metals analysts such as Ronan Manly and Koos Jansen, and guest posts from renowned bloggers such as JP Koning. BullionStar aims to continue to lead the way in original precious metals documentation, views and commentary, and has developed sections of the BullionStar website including the educational Gold University and the topical in-house 'BullionStar Blogs' series of articles. BullionStar was also at the forefront in publishing original analysis about important gold markets such as the Chinese Gold Market, and stylish visual infographics on such topics as the London Gold Market.

BullionStar's articles and analysis are regular picked up and distributed on many other websites across the world, both by websites within the gold space and by more general financial and investment websites. BullionStar articles are also regularly translated into other languages and have been featured on sites as diverse as French, German, Spanish, Russian and Chinese language websites.

BullionStar is regularly quoted in the major financial media for views and commentary about the precious metals markets, and has been cited and quoted by such publications and websites as Reuters, Bloomberg, the Wall Street Journal, the Guardian, RT.com, Sputnik News,  Straits Times of Singapore, and CityWire Asia. BullionStar staff and analysts have also featured on Channel News Asia and Channel 8 News in Singapore, as well as Real Vision TV, and German TV network DAF. BullionStar also continues to produce its own series of video interviews which feature prominent members of the global precious metals markets such as legendary US investor Jim Rogers or prominent Canadian gold market entrepreneur Eric Sprott.

As well as a strong international customer base, BullionStar places particular emphasis on being international in outlook, and at times presents at events internationally such as FreedomFest in Las Vegas and attends precious metals events and exhibitions, such as the International Money Fair in Berlin. As one of the largest retail bullion dealers in Singapore, BullionStar now also contributes to assisting precious metals consultancies such as Thomson Reuters GFMS in gauging retail investment gold and silver demand in the Singaporean bullion market.

Payment Mechanisms Include Cryptocurrencies BTC, ETH, LTC and BCH

Payment mechanisms are also another area in which BullionStar aims to provide greater customer choice and continued innovation. As well as facilitating payments for precious metals purchases funded by bank transfer, NETS and Cheque, BullionStar also accepts 6 leading national cash currencies, namely the Singapore Dollar, US Dollar, Euro, Japanese Yen, Australian Dollar and Swedish Yen, and also four of the leading cryptocurrencies.

BullionStar began accepting Bitcoin as a payment method for precious metals in May 2014 and was one of the first bullion dealers worldwide to do so. In another first, Ethereum, Bitcoin Cash and Litecoin have just been added to the list of leading cryptocurrencies which can be used to purchase precious metals at BullionStar, and with this move, BullionStar is one of the first bullion dealers worldwide to accept payment in each of BTC, ETH, BCH and LTC. Customers selling bullion to BullionStar can also opt to receive proceeds of sales in either Ethereum, Bitcoin Cash, Litecoin or Bitcoin.

In September 2015, with the introduction of a Stored Value Facility, BullionStar began offering customers the ability to keep funds on account in their BullionStar accounts in a similar way to a bank account. The facility also means that funding precious metals purchases can be undertaken instantly without needing to transfer funds in, and proceeds from precious metals sales can be kept on account until next needed.

As well as being able to purchase a wide variety of investment precious metals, BullionStar customers can also sell precious metals coins and bars, such as gold, to BullionStar. This can either be precious metal which customers hold in storage in BullionStar's secure vault and wish to sell, or else bars and coins which customers send to BullionStar or drop-in in person in the Singapore shop and showroom. Additionally, through the Gold Buyers brand launched by BullionStar in August 2013, BullionStar offers competitive prices for gold jewelry and precious metals scrap.

Having been awarded a Bullion Dealer of the Year award in 2018 via public voting in the Bullion Directory annual awards, and with strong revenue growth in every financial year since inception, BullionStar's milestone of order number 100,000 is again testament to its loyal and growing customer base both in Singapore and the Asian region, as well as across the precious metals community worldwide.

BullionStar adds Ethereum, Bitcoin Cash, and Litecoin as Payment Options and Currencies

BullionStar is pleased to announce that it has added Ethereum, Bitcoin Cash and Litecoin as transactional currencies for both buy and sell orders on the BullionStar website.

Ethereum, Bitcoin Cash & Litecoin are now accepted as payment options and currenciesMany BullionStar customers are already be familiar with using Bitcoin when buying and selling gold, silver and platinum bars and coins, as BullionStar has been accepting Bitcoin as a form of payment since May 2014. BullionStar was one of the first bullion dealers worldwide to offer customers the ability to buy and sell physical precious metals using Bitcoin. Now with the addition of Ethereum, Bitcoin Cash and Litecoin, BullionStar is again one of the first bullion dealers in the world to offer customers the ability to transact in these other leading cryptocurrencies for both buy and sell orders.

With the addition of these three additional cryptocurrencies, BullionStar customers can now buy and sell physical gold bars, gold coins, silver bars, silver coins, platinum bars and platinum coins using Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BTC) and Litecoin (LTC), and by using any of six traditional currencies, namely Singapore Dollars, US Dollars, Euro, Australian Dollars, Japanese Yen, and Swedish Krona.

BullionStar constantly aims to add innovations to its product and service offerings, and the addition of Ethereum, Bitcoin Cash and Litecoin comes after careful analysis and following customer feedback. The addition of Ethereum, Bitcoin Cash and Litecoin now gives BullionStar customers extra choice when buying physical precious metals using cryptocurrencies, and allows for faster cryptocurrency transaction confirmation times.

Settle Bullion Orders in Ethereum, Bitcoin Cash & Litecoin

To pay using a cryptocurrency, select the preferred cryptocurrency in the "Currency" drop-down box at the top right hand section of the BullionStar hompage. Upon selection, all prices in the product listings will be displayed in terms of your selected cryptocurrency.

Select to pay in Bitcoin Cash, Ethereum and Litecoin

To purchase precious metals on the BullionStar website, you simply add the desired items to your shopping cart, go to the checkout and place your order.  If you have selected a cryptocurrency as currency, the checkout payment option will default to the selected cryptocurrency as well.

Upon placing your order, the order confirmation page and order confirmation e-mail will detail the cryptocurrency address to which you must initiate your payment within 20 minutes.

BullionStar will update you with a payment confirmation e-mail and an SMS text message as soon as we have received and processed your payment.

Likewise, for customers selling precious metals to BullionStar, proceeds can now be received in Ethereum, Bitcoin Cash and Litecoin as well as in Bitcoin.

Bitcoin, Bitcoin Cash, Ethereum & Litcoin as Currency

On the BullionStar website, all product prices for gold bars, silver bars, gold coins, silver coins, BullionStar Savings Program (BSP) and other precious metals products can now be displayed in Ethereum, Bitcoin Cash and Litecoin as well as in Bitcoin.

2.5 gram PAMP Gold Bar denominated in Bitcoins

Customers can also view spot prices, portfolio values and account history directly denominated in the newly added cryptocurrencies. For example, if you select 'Litecoin' from the Currency drop-down box on the top right of the BullionStar homepage, the spot prices and charts on the right hand frame for gold, silver, platinum and palladium are then displayed in terms of Litecoin (LTC) values. When logged in to your BullionStar account, your vault balance and cash balance will also be displayed in LTC if the Litecoin currency option has been selected.

BullionStar Charts

Ethereum, Bitcoin Cash and Litecoin have also been added as currencies within BullionStar Charts.

BullionStar Charts is a comprehensive charting facility which provides the ability to create price charts for precious metals, currencies, commodities, stock indexes, individual stocks (equities) and also in terms of the prices of BullionStar products.

BullionStar's charting functionality allow any two prices to be selected. For example, on the charting page select 'Precious Metals - Gold' then select 'Currency - Bitcoin Cash' to view a price chart of the gold price in terms of Bitcoin Cash.

Gold Price in Bitcoin Cash

Why Ethereum, Bitcoin Cash and Litecoin?

BullionStar has added Ethereum, Bitcoin Cash and Litecoin as transactional currencies  alongside Bitcoin because each of these three cryptocurrencies is widely-known and widely-used, and each of these cryptocurrencies is now firmly established in the marketplace.

Since its commercial launch in 2015, the Ethereum blockchain platform and its Ether coin have become a dominant force in the cryptocurrency space, and as well as transaction processing, Ethereum also supports smart contract functionality and the development of other cryptocurrency platforms.

Bitcoin Cash emerged in early August 2017 as a hard fork when it was split off from the Bitcoin blockchain. Bitcoin Cash has a larger blocksize than Bitcoin and facilitates higher transaction rates than Bitcoin which generally translates to faster payments and confirmations. In the 9 months since its launch, Bitcoin Cash has seen large-scale adoption by merchants and is now a stable and expanding competitor to Bitcoin.

The Litecoin platform and its coin, launched in 2011, are also based on the Bitcoin blockchain design, and Litecoin is now well established and known for its high-speed transfers rates and short confirmation times.

In terms of cryptocurrency market capitalization (market cap) or total outstanding market value of each coin, Ethereum, Bitcoin Cash and Litecoin have among the highest values of all crypto coins next to Bitcoin, and the global cryptocurrency trading market values the infrastructure of these cryptocoin networks, and most importantly, given that exchanges are forward-looking pricing mechanisms, the crypto currency market is signalling confidence in the longer term future prospects of these four cryptocurrencies.

Trade Directly between Cryptocurrencies and Precious Metals

With the ability to buy and sell precious metals using Bitcoin, Ethereum, Bitcoin Cash and Litecoin, BullionStar customers can now trade directly between investment precious metals and cryptocurrencies without having to first convert to fiat currencies. Traders can also now take profits from these cryptocurrencies and directly buy precious metals using their Ethereum, Bitcoin Cash, Litecoin and Bitcoin.

Trading between Ethereum and bullion for example, you can now buy gold bullion bars and gold bullion coins through BullionStar using Ethereum and hold these investment grade bars and coins in BullionStar's vault. All you have to do is transfer Ethereum from your Ether wallet or crypto exchange account wallet to the Ethereum address as indicated on the order confirmation from BullionStar. The same applies for Bitcoin Cash, Litecoin and Bitcoin.

Then in the future If you want to sell these gold bars and gold coins and take the proceeds in Ethereum, you just sell the precious metals for Ethereum and have the Ether transferred to your personal Ether wallet or crypto exchange account wallet. There is no need to first convert the Etheruem to US dollars to buy your chosen gold bar and coin products. Thus the intermediate step of converting the main crypto currencies to fiat currencies, such as US dollars is redundant.

Types of Gold Standards

This blog post is a guest post on BullionStar's Blog by the renowned blogger JP Koning who will be writing about monetary economics, central banking and gold. BullionStar does not endorse or oppose the opinions presented but encourage a healthy debate. 

People often throw out the phrase "gold standard" into conversation, but it's worth keeping in mind that there have been several iterations of the gold standard over the course of history. This article describes each type of gold standard using historical examples for clarity.

1. The Gold Coin Standard, or Specie Standard

-Bimetallic Coin Systems-

Medieval coinage systems were typically bimetallic, relying on both gold and silver. To ensure the realm was well-supplied with coins, the monarch maintained a network of mints. Mints in the medieval times operated very differently than they do now. According to the principles of free coinage, access to these mints was available to anyone. By bringing their stash of raw precious metals to the mint, members of the public could ask the mint master to turn it into a specified number of coins, albeit for a fee.

English gold noble, half noble, quarter noble, silver groat, and silver penny (source)

To ensure that a variety of large and small transactions could be made by the public, the mint typically produced a range of small and large coin denominations. In England's case, by the 1500s it was issuing pennies, farthings (1/4 pennies), groats (4 pennies), testoons (12 pennies), half crowns (30 pennies), gold nobles (100 pennies), and more.

Minting low denomination coins like farthings and pennies out of gold was generally not a feasible option because the resulting coin would be tiny and easily lost. Twinning gold with a large amount of base metals like copper might have resulted in a larger and more manageable low-denomination gold coin, but then it would be susceptible to counterfeiting. As for high denomination silver coins, they would be large and bulky. Thus bimetallism amounted to a sensible sharing of the monetary load by both gold and silver coins.

-Accidental Monometallic Gold Coin Systems-

Bimetallic standards sometimes careened off course and became what are known as monometallic standards, with either gold or silver dominating. Thus emerged the first true gold standards, albeit entirely by accident. The mechanism underlying this muddling into monometallism was rooted in the fixed price between the two metals as enforced by the monarchs' mints.

To illustrate how this fixed price worked, consider that in August 1464 anyone could bring raw silver to the London Mint and have it minted into English pennies that contained 0.72 grams of silver. The mint would also turn raw gold into English nobles which contained 6.69 grams of gold. Since law stipulated that a noble was worth 100 pennies, that meant that the mint effectively valued a fixed amount of gold at 11 times the same amount of silver. (I get this data from John Munro [pdf]).

Gold guinea, 1664, which replaced the British unite coin

When the mint's chosen gold-to-silver ratio diverged too far from the global market ratio of gold-to-silver, then one of the two metals would begin to be ejected from the domestic monetary system. The reason for this is that a divergence effectively meant that the monarch was undervaluing one metal and overvaluing the other, and since no one who owned gold (or silver) coins wanted their property to be less than its true worth, the undervalued metal would be taken off the market.

For instance, if the mint was undervaluing silver, then anyone who purchased £1000 worth of raw silver and brought it to the mint for conversion into coins would get less purchasing power than if they had bought £1000 worth of gold and bought it to the mint. So the flow of silver to the mints would grind to a halt. Furthermore, any high quality silver coin already in circulation would be sent overseas in order to take advantage of the true gold-to-silver ratio. At this point a gold standard had emerged.

England stumbled onto a monometallic gold standard in the 18th century after having operated on a bimetallic basis for centuries. The gold-to-silver ratio used by the mint in the later 1600s and early 1700s undervalued silver and overvalued gold, so England's silver coins were steadily being shipped to the continent, causing silver coin shortages. Isaac Newton, the famous physicist who was appointed Master of the Mint in 1699, counseled the government to bring the ratio in line with the market. But when he finally moved to fix the problem in 1717, he undershot the amount of adjustment necessary, so that silver remained undervalued and the export of silver coins continued. Thus England was pushed onto a gold standard.

-The Hybrid Circulation of Coins and Paper Money-

By the 17th century, banknotes had joined coins in circulation. Paper money was originally convertible into a fixed amount of coins, issuers holding enough reserves in their vaults to ensure that ready convertibility was possible. A banknote is far easier to carry and handle than a coin, and since the public generally trusted the issuers of these notes, gold coins were pushed out of circulation and into bank vaults or non-monetary uses like jewellery. By the 1800s, it was rare to see a gold coin circulating in England.

Even as banknotes came to dominate, the British standard effectively remained a gold coin standard. Since a banknote was convertible into a fixed amount of coin, the note's purchasing power was regulated by the value of the coin itself. If there was any divergence between the two, say notes became more valuable than underlying coins, than arbitrageurs would push them back into line by buying coins for 99p and converting them into £1, earning 1 penny in risk-free profits.

The Bank of England's first 5 pound note, 1793

Substituting out metal with paper resulted in a cheaper payments system. Adam Smith was one of the earlier writers to comment on this, describing gold and silver coins as a highway that "carries to market all the grass and corn of the country." Bank-provided paper money was a more superior sort of thoroughfare, in Smith's words a "waggon-way through the air." The replacement of gold by paper money allowed the nation to convert barren highways - its metallic coinage - into goods pastures and cornfields, thus increasing the annual produce of the country.

2. The Gold Bullion Standard

If gold coins weren't used much in trade, might it be possible to cease minting them altogether yet remain on a version of the gold standard? This was the idea behind the gold bullion standard, first conceived by the famous English economist David Ricardo in early 1816 and eventually adopted in Britain some one hundred years later, in the aftermath of WWI. Under a bullion standard, an issuer of paper money promised to redeem its banknotes not with gold coins, or specie, but for a given amount of raw bullion.

At the same time, the mint ceased to allow free coinage of gold, effectively closing itself to the public. Existing gold coins were called in and demonetized. The mint now focused its resources on providing the government with low denomination token coins for use as small change. The value of token coins wasn't regulated by the metal inside of them. After all, a token coin with the face value of £1 might contain just a few cents worth of silver, copper or nickel. Rather, a £1 token circulated at its face value of £1 because the monetary (or fiscal) authority promised to buy those tokens up at their face value.

The adoption of a gold bullion standard resulted in a reduction in the costs of running the payments system. By pushing gold coins entirely out of circulation and replacing them with a combination of token coins and paper money, gold was conserved and could be put towards better uses. It was one step forward towards Adam Smith's waggon-way through the air.

3. The Gold Exchange Standard

A gold exchange standard takes the principle of gold conservation even further. Where the shift onto a gold bullion standard meant that any institution that issued paper money was now obligated to redeem their notes with raw bullion rather than coins, under a gold exchange standard these same issuers could no longer redeem their notes with raw bullion but were required to offer notes of a second-party issuer that was itself on a gold coin or gold bullion standard.

A number of nations adopted this sort of standard in the 1800s and early 1900s, including the Philippines and India. But perhaps the most famous example was the Bretton Woods system that dominated after WWII up until 1971. Under the Bretton Woods system, the U.S. Treasury promised to redeem its notes directly for gold. Most other nations in turn agreed to redeem their notes with a fixed quantity of U.S. Dollars. So while French Francs and Japanese Yen and Canadian Dollars weren't directly redeemable in gold, they were indirectly convertible.

4. A Partially Convertible, or Limping Gold Bullion Standard

Limping standards originally emerged when bimetallic coin standards were adjusted in such a way that the mints continued to allow free coinage of one of the metals, say gold, but ceased to freely coin the other, say silver. The silver coins were not removed, however, and continued to circulate along with gold coins, the silver coinage "limping on" so to say.

But we are more interested in the limping standard's more modern incarnation, a partially-convertible gold bullion standard. Rather than allowing everyone the ability to redeem paper banknotes for gold, a central bank (or any other issuer) imposed conditions on who could convert their banknotes. In 1934, for instance, the U.S. ceased allowing private individuals and businesses to convert their notes into gold, limiting this feature to foreign governments and other large government-sponsored entities.

Evolution of the promises on a Federal Reserve banknote (source)

Partially-convertible systems are more convenient for issuers to maintain since they reduce the infrastructure costs involved in maintaining universal convertibility. We see this same principle applied to modern-day Exchange Traded Funds (ETFs), for instance. Although ETF units are convertible into an underlying instrument (say the S&P 500 or gold), only a few select authorized participants have permission to invoke this convertibility option. As long as these authorized participants are motivated by profits, the value of the ETF units will never diverge very far from the value of the underlying instruments. If ETF providers were required to allow everyone to redeem their units, they would have to build out and maintain the requisite infrastructure, the resulting costs pushing up fees.

Likewise, partially-convertible gold bullion standards such as the one that the U.S. ran from 1934 to 1971 could, in principal, lever the financial expertise of a few authorized participants to achieve the same fixedness to gold as a regular gold bullion standard or an old-fashioned gold coin standard, but at far less cost to society. Complicating matters in the U.S.'s case was the fact that only foreign governments could convert dollar banknotes into gold, and these governments were not as efficient as profit-minded ETF authorized participants in policing the link between gold and dollars.

In Summary...

There have been a number of different gold standards over the last thousand or so years. Each iteration brought with it a reduced role for the monetary metals, the resulting reduction in storage and handling costs and the diversion of gold to better uses being a net gain to society.

At the same time, even though gold has had a smaller role to play, the purchasing power of the nation's monetary units throughout this evolution continued to be tethered to the yellow metal rather than being dictated by some more arbitrary force. Put differently, from one version of the gold standard to the next, society benefited from the price stability afforded by a link to gold while being liberated from some of the metal's inconvenient physical burdens.

BullionStar Wins First Place in Bullion Directory’s 2018 Awards

BullionStar has won Best Bullion Dealer "Rest of World" in the 2018 Bullion Directory bullion dealer Awards.

Bullion Directory is an online directory which lists over one thousand bullion dealers across the world. Each year, Bullion Directory runs its global awards competition where winners are decided by the voting public.

BullionStar secured the Bullion Directory award after being shortlisted during a first round of voting whose results were announced on 18 December last. The main vote then ran from 15 January to 23 February, with the winners announced on Friday 9 March.

The competition for the Award was strong, with bullion dealers shortlisted in the Rest of the World category being Tanaka Gold of Japan and GoldPark (Mitsubishi) of Japan, as well as Bullion India and RiddiSiddhi Bullions, both based in India. In the first round, the Rest of World category saw bullion dealers from 12 countries, such as Switzerland, Singapore, Hong Kong, Japan and India, compete to be selected in the final shortlist of five companies.

BullionStar secured 32.6% of the votes in the final round, ahead of 2nd place RiddiSiddhi Bullions of India on 28.4% of the votes. In third place was Tanaka Gold of Japan with 18.1% of the votes.

BullionStar's shop and showroom in central Singapore

Commenting on the win, BullionStar CEO Torgny Persson said, "We’re delighted to have been voted the #1 Bullion Dealer of the Year 2018! This award bears testament to our success in breaking new ground by introducing modern technology into the age-old precious metals industry."

Mr. Persson added, "BullionStar has been growing tremendously over the last few years despite the precious industry consolidating as a whole and we’re pleased that this success has been recognized by being voted the #1 Bullion Dealer of 2018.

Bullion Directory Awards

On BullionStar's award achievement, Bullion Directory commented that:

"BullionStar could not be a more appropriate winner in our all-new Rest of World category, with a rapidly-growing customer base across the globe looking to buy and store precious metals in their vault."

Based in Singapore and catering to the local, global and offshore storage markets, BullionStar’s reach is phenomenal thanks to its low prices, high levels of customer care and now legendary precious metals analysis and market coverage."

Bullion Directory's Best Bullion Dealer 'Rest of the World' award is a new category for 2018. Prior to this year, the Bullion Directory awards were limited to bullion dealers based in the UK, USA, Canada, Australia and UAE, with a winner selected in each of those 5 country categories.

Next year for 2019, Bullion Directory plans to expand its coverage and split the Rest of World category into a number of distinct regional categories.

The full list of winners of the 2018 Bullion Directory awards can be seen on the Bullion Directory website.

BullionStar's listing on the Bullion Directory website can be seen here.

Why QE didn’t send gold up to $20,000

This blog post is a guest post on BullionStar's Blog by the renowned blogger JP Koning who will be writing about monetary economics, central banking and gold. BullionStar does not endorse or oppose the opinions presented but encourage a healthy debate. 

Why didn't quantitative easing, which created trillions of dollars of new money, lead to a massive spike in the gold price?

The Quantity Theory of Money

The intuition that an increase in the money supply should lead to a rise in prices, including the price of gold, comes from a very old theory of money—the quantity theory of money—going back to at least the philosopher David Hume. Hume asked his readers to imagine a situation in which everyone in Great Britain suddenly had "five pounds slipt into his pocket in one night." Hume reasoned that this sudden increase in the money supply would "only serve to increase the prices of every thing, without any farther consequence."

Another way to think about the quantity theory is by reference to the famous equation of exchange, or

  • MV = PY
  • money supply x velocity of money over a period of time = price level x goods & services produced over that period

A traditional quantity theorist usually assumes that velocity, the average frequency that a banknote or deposit changes hands, is quite stable. So when M—the money supply— increases, a hot potato effect emerges. Anxious to rid themselves of their extra money balances M, people race to the stores to buy Y, goods and services, that they otherwise couldn't have afforded, quickly emptying the shelves. Retailers take these hot potatoes and in turn spend them at their wholesalers in order to restock. But as time passes, business people adjust by ratcheting up their prices so that the final outcome is a permanent increase in P.

In August 2008, before the worst of the credit crisis had broken out, the U.S Federal Reserve had $847 billion in money outstanding, or what is referred to as "monetary base"—the combination of banknotes in circulation and deposits held at the central bank. Then three successive rounds of quantitative easing were rolled out: QE1, QE2, and QE3. Six years later, monetary base finally peaked at $4.1 trillion (see chart below). QE in Europe, Japan, and the UK led to equal, if not more impressive, increases in the domestic money supply.

U.S. monetary base (banknotes and deposits at the Fed)

So again our question: if M increased so spectacularly, why not P and the price of gold along with it? Those with long memories will recall that while gold rose from $1000 to $2000 during the first two legs of QE, it collapsed back down to $1000 during the last round. That's not the performance one would expect of an asset that is commonly viewed as a hedge against excess monetary printing.

How Regular Monetary Policy Works

My claim is that even though central banks created huge amounts of monetary base via QE, the majority of this base money didn't have sufficient monetary punch to qualify it for entry into the left side of the equation of exchange, and therefore it had no effect on the price level. Put differently, QE suffered from monetary impotence.

Let's consider what makes money special. Most of the jump in base money during QE was due to a rise in deposits held at the central bank, in the U.S.'s case deposits at the Federal Reserve. These deposits are identical to other short-term forms of government debt like treasury bills except for the fact that they provide monetary services, specifically as a medium for clearing & settling payments between banks. Central banks keep the supply of deposits—and thus the quantity of monetary services available to banks—scarce.

Regular monetary policy involves shifting the supply of central bank deposits in order to hit an inflation target. When a central bank wants to loosen policy i.e. increase inflation, it engages in open market purchases. This entails buying treasury bills from banks and crediting these banks for the purchase with newly-created central bank deposits. This shot of new deposits temporarily pushes the banking system out of equilibrium: it now has more monetary services than it had previously budgeted for.

To restore equilibrium, a hot potato effect is set off. A bank that has more monetary services then it desires will try to get rid of excess bank deposits by spending them on things like bonds, stocks, or gold. But these deposits can only be passed on to other banks that themselves already have sufficient monetary services. To convince these other banks to accept deposits, the first bank will have to sell them at a slightly lower price. Put differently, it will have to pay the other banks a higher price for bonds, stocks, or gold. And these buyers will in turn only be able to offload unwanted monetary services by also marking down the value, or purchasing power, of deposits. The hot potato process only comes to a halt when deposits have lost enough purchasing power, or the price level has risen high enough, that the banking system is once again happy with the levels of deposits that the central bank has injected into the system.

What I've just described is regular monetary policy. In this scenario, open market operations are still potent.  But what happens when they lose their potency?

Monetary Impotence: Death of the Hot Potato Effect

A central bank can stoke inflation by engaging in subsequent rounds of open market purchases, but at some point impotence will set in and additional purchases will have no effect on prices. When a large enough quantity of deposits has been created, the market will no longer place any value on the additional monetary services that these deposits provide. Monetary services will have become a free good, say like air—useful but without monetary value. Deposits, which up to that point were unique thanks to their valuable monetary properties, have become identical to treasury bills. Open market operations now consists of little more than a swap of one identical t-bill for another.

Zimbabwe 100 trillion dollar notes together with gold bullion
100 Trillion Dollar Notes are not yet required to purchase gold. Why hasn't the increased money supply significantly increased the gold price?

When this happens, subsequent open market purchases are no longer capable of pushing the banking system out of equilibrium. After all, monetary services have become a free good. There is no way that banks can have too much of them. Since an increase in the supply of deposits no longer has any effect on bank behavior, the hot potato effect can't get going—and thus open market purchases have no effect on the price level, or on gold.

This "monetary impotence" is what seems to have overtaken the various rounds of QE. While the initial increase in deposits no doubt had some effect on prices, monetary services quickly became a free good. After that point, the banking system accepted each round of newly-created deposits with a yawn rather than trying to desperately pass them off, hot potato-like.

And that's why gold didn't rise to $20,000 through successive rounds of QE. Gold does well when people find that they have too much money in their wallets or accounts, but QE failed to create the requisite "too much money".

The Blockchain Beyond Bitcoin

The rapid emergence and commercialization of blockchain technology is undoubtedly one of the key technological trends at the moment, not just within crypto currencies, but as a disruptive technology across many industries and economic functions.

At a high level, a blockchain is a distributed and public digital ledger of transactions that is updated across a peer-to-peer network, and that uses cryptography to record and update the chain of blocks that make up the ledger. Within a blockchain structure, there is no central authority.

What is a Block Chain?

The essence of a decentralised blockchain network is actually explained quite simply in the introduction to the whitepaper of the world’s first implemented blockchain, Bitcoin, i.e. Sataoshi Nakamoto’s now famous Bitcoin whitepaper which was titled “Bitcoin: A Peer-to-Peer Electronic Cash System”.

In the Bitcoin peer-to-peer network, as devised by Nakamoto, network transactions are processed by cooperative nodes on the network and then stored in an ongoing chain of updates that cannot in practice be altered. The processing works by taking a number of transactions, gathering them into a block, and then hashing them, while also referencing the previous block of data.

In general, hashing refers to the process of converting a string of data into a fixed length value. The hashing function takes in the input string and outputs the hashed value. The Bitcoin protocol uses a block hashing algorithm where transactions are timestamped, with each hash output containing its own timestamp and the timestamp of the previous block. This allows the blocks to be hashed into an ongoing chain of blocks. Hence the term block chain or blockchain.

Within the Bitcoin network, the hashing is done by competing computing nodes on the network which are known as miners, and the hashing is designed so that significant mathematical effort (and CPU power) are required to produce the correct hash that will satisfy hash formatting rules, but that will also be easily identifiable as a valid block by all other nodes. The system of calculations that produce the blocks that can pass this validity check is referred to as a proof of work (PoW) system.

The mining process is therefore essentially adding new transactions to the blockchain with the inputs to the hash function being the transactions on the network which have not yet been validated or confirmed. Once a new block is accepted, all miners will switch to working on validating the next block.

Although the network is decentralised, the nodes on the network don’t need to trust each other or coordinate with each other. They can all examine the latest block created and accept its validity, therefore accepting that the longest chain is the valid chain. All the nodes or participants in the network can therefore reach consensus even though they don’t know each other and don’t communicate with each other. In the Bitcoin network, the miner which successfully solves the hash of a new block will receive an incentive for their work in the form of new bitcoins.

This continual chaining of blocks means that the resulting blockchain is irreversible and permanent, with every transaction in the history of the network being recorded in perpetuity. A properly maintained blockchain is therefore a public record that cannot be altered or tampered with.

Grasping this essential nature of a blockchain should help explain why Blockchain as a technology is variously described as a “public ledger”, a “distributed ledger”, or as a “globally decentralized public accounting ledger”. Any venture that promotes itself as using blockchain should be in some way using the technology described above or a variant of it.

The Emerging Competition to Bitcoin

Since the launch of Bitcoin nine years ago in January 2009, the blockchain technology and design concepts inherent in Bitcoin have served as the foundation for many other cryptocurrencies and blockchain innovations. There are now over 1500 exchange-traded cryptocurrencies (coins and tokens) listed on the crypto coin tracking site www.coinmarketcap.com which back these mostly blockchain ventures.

As in any competitive market, many of these coins and the companies backing them will most likely not survive over time and will disappear. However, in addition to Bitcoin (currently valued at approximately $170 billion), there are multiple coins alternative to Bitcoin (alt coins) which use block chain models, and which the ‘market’ continues to put a significant value on, based on the current trading prices of their coins /tokens and the market capitalisations of these coins / tokens.

Litecoin (currently valued at over $12 billion) used much of the same design as Bitcoin when it first released in October 2011, while introducing some coding changes such as a shorter block generation time and a different hashing algorithm.

Bitcoin Cash (valued at over $20 billion) was created on 1 August 2017 via a hard fork when the Bitcoin blockchain split into two separate chains. While the block size in Bitcoin is 1 MB, Bitcoin Cash has an increased block size of 8 MB. Bitcoin Cash allows for processing of more transactions per second than Bitcoin, which should translate into faster payments. In the short time since its launch, Bitcoin Cash has seen widespread adoption by a supportive community of developers as well as encouraging take-up by merchants and listings on many cryptocurrency exchanges. It is also supported by some high-profile names in the Bitcoin community such as Craig Wright, Roger Ver and Calvin Ayre.

Ethereum (valued at approximately $80 billion), which launched in 2015, is a distributed public blockchain system and platform that significantly extends the blockchain concepts first used in Bitcoin, and in addition to transaction processing, it also supports smart contract functionality.

Smart contracts are self-executing contracts. In technical terms, smart contracts are small software programs that live and run on a blockchain and that are replicated across the blockchain ledger. In terms of function, smart contracts are agreements which are coded so that they will only be triggered or executed when the terms of the agreement are validated. The contract logic of Ethereum smart contracts runs in a run-time environment called the Ethereum virtual machine.

The Ethereum network, co-founded by Vitalik Buterin, uses a cryptocurrency called Ether, abbreviated to ETH. Ethereum also currently uses proof of work (PoW) to prove the validity of blocks and rewards miners with ETH for processing new blocks. ETH is also used to pay for the fees levied to run Ethereum smart contracts. Ethereum will in the future move to a Proof of Stake (PoS) algorithm for awarding and allocating new blocks. Proof of Stake is based on assessing the validator’s economic stake in the platform, for example, does it hold the platform’s currency (e.g. ETH).

The Ethereum platform also supports an open source software protocol that allows software developers to build their own distributed blockchain applications or Decentralised Applications (DApps). Over 1100 DApps have already been developed using the Ethereum Platform. For example, Golem, which is a project that aims to link worldwide computers together to harness their idle processing power, is an Ethereum based DApp.

As of the time of writing, Bitcoin Cash was processing over 20,000 transactions per day. The average transaction fee on the network was 0.217 US dollars. The average time between blocks (block time) for Bitcoin Cash was 10 minutes. Similar processing statistics for Bitcoin showed that the Bitcoin network processed 215,000 transactions during the same period, with an average transaction fee of 3.04 US dollars, and a block time of 8 minutes 5 seconds. During the same time, the Ethereum network processed 835,000 transactions with an average transaction fee of 0.865 US dollars, and a block time of 15 seconds.

A relatively new blockchain platform called Cardano (currently valued at more than $9 billion) is also being valued by the market as having significant potential. Like Ethereum, Cardano is an open source decentralised public blockchain with its own cryptocurrency called ADA. The Cardano platform is also developing smart contracts and decentralised applications (DApps).

Purchase Precious Metals at BullionStar using Cryptos

BullionStar is committed to offering customers flexibility and choice when transacting on the BullionStar website and in the BullionStar shop and showroom in Singapore. As such, BullionStar facilitates the use of Bitcoin as a payment currency in addition to 6 major national currencies (Singapore Dollars, Euros, US Dollars, Japanese Yen, Australian Dollars and Swedish Krona). This ability to use Bitcoin to buy gold bars, gold coins, silver bars, and silver coins has been available to BullionStar customers since 2014.

All of the features of BullionStar's website are also fully integrated with Bitcoin. When selected from the Currency drop-down menu at the top right hand side of the BullionStar website homepage, Bitcoin becomes the default transactional currency within the website, and all product prices, spot prices, chart data, and account history will be displayed in Bitcoin. When logged into their accounts on the BullionStar website, customers can view their vault portfolios and cash balances and account history all in terms of BTC.

Bitcoin is fully integrated into BullionStar's website functionality

Benefits of Block Chain

Overall, some of the benefits of using blockchain technology include the following:

  • A blockchain, as long as it’s up and running, will continue to exist, so is a permanent record independent of any central authority. As its decentralized, there is no single point of failure, and the data can’t be lost because it is replicated across nodes.
  • Transactions that have been committed to a public blockchain are in practice irrevocable, which means that they cannot be changed, tampered with, or deleted, i.e. they are immutable.
  • Transactional data sent through a blockchain is encrypted and secure from interception
  • Blockchains, as distributed and decentralized platforms, offer dis-intermediation from often inefficient and costly intermediaries. They therefore offer efficiency improvements and cost savings compared to the frictions and costs associated with intermediaries.
  • Transacting currency across a decentralised blockchain between accounts, such as over the Ethereum platform, is far faster than over a centralized legacy bank transfer system.
  • Blockchain platforms that support smart contracts offer the potential to radically alter a whole range of industries that up until now have relied on the centralized execution of agreements and the obligations and terms of those agreements.
  • A public blockchain is a persistent and permanent ledger of transactions and data, accessible for anyone to see and to audit. It therefore enhances transparency, as well as hinders censorship.

Applicability of Block Chains

While the implementation of blockchain applications to the world’s industries is still in its infancy, the potential to alter existing economic systems appears far reaching, such as in financial services, real estate, legal services, government services, supply chain management, and energy markets.

For example, in the investment asset and property management sectors, ownership rights, title deeds and transactions could be recorded in blockchain ledgers, potentially altering the core processes of the asset management and property law sectors.

In the government sector, blockchain applications could be applied to electoral registers, voting records and polls, which is especially promising as blockchain data once committed can’t be altered or hacked. This would also increase transparency, trust and confidence in electoral and voting systems. Block chains also have potential to be used for digital identity and authentication functions such as passports, birth certificates, and other forms of government issued identification.

Blockchain records and transactions could also improve transparency in the world of corporate governance, providing transparent records of board level decisions and voting records.

The legal areas of intellectual property, patents, and music royalties are also strong candidates for adopting blockchain transaction and keeping records of ownership as well as the utilization of smart contracts to collect fees. Blockchains and smart contracts can also aid global supply chain management, such as tracking shipments and inventories and re-ordering supplies.

Other areas where smart contracts are seen to be beneficial include online gaming, online gambling, prediction markets, the sharing economy such as ride sharing and accommodation sharing, the trading of computer processing power, decentralized data storage, and decentralized securities exchanges. Overall, smart contracts are in theory applicable to anything that can be programmed, which covers a wide range of agreements and documentation in nearly every industry around the globe.