What is gold currency?

What is gold currency?
Basically it is a very simple concept.
Gold is currently (at the time of writing) around 444USD per ounce. Of course the value
compared to fiscal (dollars and cents) currency varies and has been as low as 300USD per ounce
and as high as 800USD per ounce. But the variation is usually only a few cents or a dollar or two
each day and not particularly significant for people using gold as an immediate currency. It does
become important when one is using it as an investment or holding on to it for any length of time
and transacting in large amounts perhaps. However carting around even an ounce of gold is not
very convenient. If you wish to purchase a product or service for say, 100USD then it is difficult
to break off a slice of gold to that value and hand it over to the merchant. There is another method
however.
Corporations such as e-gold, GoldMoney and Pecunix
operate on a basic principle of accounting. Without
going into the technicalities of it, all that happens is that
you open an account with either e-gold, GoldMoney,
Pecunix or another gold issuer and then you can fund
your account with gold. Gold is obtained from exchange
providers who make a business simply converting or
transacting fiscal funds to gold and visa versa. More on
exchange providers later.
The currency supplier holds in trust a quantity of gold
bars. These are usually 400 troy ounces (1 kilogram is
equivalent to 32.1507 troy ounces)the size of the
internationally traded London Good Delivery bar. The
term “small bars” refers to bars weighing 1000g or less.
So gold issuers such as e-gold, GoldMoney and Pecunix for example, supply and act as custodians
on behalf of clients who own a specific quantity of gold metal.. With this system an account
holder, who can be a consumer or a merchant, holds a quantity of gold which may be anywhere
from fractions of an ounce to entire 400 ounce bars and their holding is represented as accounts
which display the value of gold held by that account holder. Transactional history and balances
are available upon inspection and a small fee is charged for each transaction and for storage. This
gold is in the form of actual gold bars and held in escrow in banks around the world. Each account
holder actually ‘owns’ an amount of that gold and this holding is reflected in his account. A
consumer can fund their account through one of the exchange providers set up for this purpose
and then ‘spend’ any amount, even down to a penny, to a merchants account. The value of gold is
then transferred from the consumer’s account to the merchants. The merchant can redeem his
gold or ‘cash it in’ with an exchange provider when he has sufficient.
Having opened your account with one of the currency suppliers (usually free) you then ‘fund’ the
account through an exchange provider. If, for example you wanted 200 US dollars worth of gold
you would supplied that amount of dollars to the exchange provider and he or she would fund
your account with the gold to that value less his commission. Your account would then show gold
to the value deposited in your account by the exchange provider. This is simply a transfer of
Gold Currencies and How to Use Them
7
ownership. The gold is not moved. It stays in the bank vault. All that has happened is the portion
of one of those gold bars which was ‘owned’ by the exchange provider has now been transferred
to you.
Of the gold bars resting in the bank vault, you would own a sliver of one of those bars. The value
of that 200 dollars worth of gold may go up or down. If gold goes down compared to the US
dollar your gold ‘holding’ would reflect this in a slightly less value, perhaps 190 dollars worth of
gold. The actual gold does not change. It continues to sit there. Only the value of it may change.
By the same token, if the price of gold rises dramatically then your small sliver might suddenly be
worth 240 dollars.
But let’s say that, having acquired the 200 dollars worth of gold, you then decide to spend it on a
nice up market DVD player available across the country for 150 dollars. You don’t want to pay
by check or use your bank account. The retailer accepts e-gold so you simply spend the 150
dollars to his account. This is an instant transaction so the retailer is happy, he has his gold
without waiting and at a relatively small cost (usually the currency issuer will charge a few cents
for the transfer to the recipient). The ownership of that amount of gold has now changed again.
You still own a tiny sliver of gold worth 50 dollars but the retailer now owns that portion of the
gold bar in the vault worth 150 dollars which you owned. When you make your spend the
currency suppliers software makes the record in both accounts of the transfer of ownership.
Sometimes it is called gold credits.
Presumably, of course, you will get your DVD.
There are some variations to the above and one can go into the technicalities of how it works and
for those keenly interested there are some links and references at the back of the book. There are
some important factors to be aware of however.
Firstly, although the transactions are not expensive, especially when compared to conventional
systems such as banking, credit card, Western Union and the like, there is still a cost to be
considered. Exchange providers traditionally charge anywhere between 2 and 15% depending
largely on how you fund them. If you use a credit card to buy gold you will incur higher charges
naturally. If you pay cash then the charge will be less.
Second, the transaction is instantaneous. There is no ‘waiting period” for any party. Once the
’spend’, as it is called, is done the debit from your account and the credit to the account you have
spent to is done. So it pays to ensure you do it accurately and not make any mistakes.
Third, the ‘spend’ is irrevocable. That is to say irreversible. Not like a bank check which one can
claim was falsely issued or a credit card payment which one might claim was unauthorized. The
currency issuer will not reverse a transaction once make. One should therefore be totally sure that
one wants to make the spend and that one is spending to the correct account. You cannot rely
upon the person you are spending to reverse it in the event of an error.