Interview with GoldMoney Founder James Turk

GoldMoney.com stores the largest amount of precious metal bullion of any digital gold currency (DGC) in the world. Today their vaults contain around a quarter of a billion dollars worth of precious metal. Account holders can easily purchase digital gold and digital silver bullion through a variety of payment methods. They also provide customers a choice of bullion storage through secure vaults in London and Switzerland.

GoldMoney accounts also offer a variety of practical financial services which can be used in conjunction with the purchase or sale of this popular digital gold currency. The company is organized and operated from Jersey, one of the Channel Islands situated in the English Channel near the north-western tip of France. The GoldMoney web servers are also based in Jersey.

Filed back in 1993, the first GoldMoney patent was finally granted in 1997. Since that time they have received 3 additional patents for their digital currency technology and a fifth patent is now pending. Their patent technology focuses on GoldMoney's, "...system and method that enables gold or other commodities (tangible assets) to circulate through an electronic medium as currency."
Mr. Turk has created the world's largest digital gold currency. Here is my interview.

DGC. Are you the original inventor of digital gold currency (DGC)?
Turk. Yes, after coming up with the idea for DGC, I began researching patent law in the early 1990s and realized that my idea was patentable. I therefore hired a patent attorney in 1992, and the first patent application was filed in February 1993. GoldMoney now holds four US patents, and other patent applications are pending as we continue to develop our intellectual property.

DGC. How many account holders does GoldMoney currently have?
Turk. Over 40,000

DGC. How is a goldgram created? Who is involved in that chain of issuing the digital units?
Turk. It's a very important process, and I can't share all of the checks and balances for security and competitive reasons, but here are the key steps to the process. The first step is the notification GoldMoney receives from its customer that gold or silver bars are being delivered into the vault. This information is then passed on to Via Mat and Euro-Dutch Trust Company. When the bar(s) arrives in the Via Mat vault, it is first checked by Via Mat personnel to make sure it meets in all respects the standards of the London Bullion Market Association. They then notify EDTC of the fine weight of the metal content in the bars, which EDTC then records into the system. GoldMoney supervises the process and provides a double-check to make sure that everything is properly recorded, namely, that the fine weight of gold or silver are accurately recorded in the customer's Holding. There is no fee for adding or removing gold and silver from GoldMoney.

DGC. More importantly, what prevents the GoldMoney database from containing more digital grams than are on deposit in the secure vaults?

The short answer is there are numerous checks and balances between different service providers that are part of the processes that enables GoldMoney to operate. All of this is then verified by our auditors who confirm the 1-to-1 relationship that the total weight of gold and silver in the vaults always equal the total quantity of goldgrams and silver ounces recorded in customer Holdings.

I recommend that your readers review our extensive governance procedures to see how we safeguard our customers' gold and silver. This information is available on our website at the following link: http://goldmoney.com/en/governance.html

DGC. I've read your quote many times, "Gold is Money" and I agree, yet there are very few places in our modern society where one can pay for a common daily expense using a gold coin or even online using digital gold. Will we see this change over the next few years?
Turk. Yes, I expect it to happen over time, but in my view that is not going to be gold's major application as currency over the next few years. Gold's principal use will be in cross-border commerce, and principally by companies, rather than individuals.

DGC. Do you still refer to GoldMoney as a 'currency' ?
Turk. Yes, of course, because it is indeed a currency. People can use their goldgrams as currency, spending them or exchanging them for other currencies or saving them. These are just like things you can do with any national currency.

DGC. If the US dollar continues to decline in value or even collapses do you feel that the US Government and Treasury would adopt a new gold standard?
Turk. No, the likelihood of that happening is less than 10% I think. Even if they tried it, no one would believe them, which would undermine their effort to establish a gold standard - unless of course Congressman Ron Paul was elected president. That event would change my view because he is committed to re-establishing a monetary system based on what the framers provided in the Constitution, which is the system that prevailed more or less for the first 180 years of this country's history.

DGC. Your first GoldMoney patent was awarded just over ten years ago in October 1997. Given the loss of confidence in some national currencies and gold's recent move up in price are you concerned that a pack of Internet DGC competitors will emerge over the next couple of years?

Turk. I don't know, but if they do, they will need to match our governance procedures. Anything less than we have done will not provide their customers with the necessary assurances of integrity that all customer gold and silver is safe and secure. The failure to meet this requirement is one reason some GoldMoney wannabees have fallen along the wayside over the years.

DGC. I'm interested in making digital gold more mainstream for daily use with businesses and consumers. What advice can you give me which will help to move this idea forward with retail merchants and consumers?
Turk. They need an incentive or some "killer" application. That's the way online commerce has been developing. If they see an incentive or some application for which they need to use digital gold, they will quickly start using it. The incentive can be many things, like lower costs, security of payment, convenience, etc. But it takes time for people to understand the advantages. Remember, gold is unfamiliar to most people. It has not been circulating as currency for eight decades, so few today remember using it as currency. And few today understand that gold is money, or even why gold is money. They see it as an investment, rather than money.

DGC. I'm sure you are aware of the new proposed e-money the government authority is now working to get issued in Singapore. (Singapore Electronic Legal Tender) Do you have an opinion on SELT?
Turk. I only know what I've read about it in news reports. While electronic currency makes sense, legal tender does not, regardless whether the currency is electronic, paper or other forms. Legal tender means that the currency circulates because of the use of force. In other words, governments force you to use it, and accept it in payment. That's bad because the fundamental underpinning of the marketplace is voluntary exchange, and there's no place for force in a voluntary exchange.

DGC. Last week there was an interesting article on how PayPal's money market fund portfolio was currently holding $1.63 billion dollar of illiquid assets, which is 5.5 percent of their total holdings. PayPal is often considered a 'safe' place to keep funds, yet they now seem to be writing down a massive amount of their current portfolio. Ouch!
Turk. Ouch indeed. People everywhere are starting to learn about counterparty risk.

DGC. This is a purely sarcastic question, however based on that last question, I can't resist asking. Have you ever had to write off $1.6 billion dollars in value because gold was NOT liquid?
Turk. Absolutely not!

DGC. On of the biggest obstacles I've found when talking to new users of digital gold or interested people is their ability to grasp the concept of how a digital gold account is valued. In a standard bank account, a deposit is made in dollars, remains in dollars and the deposit amount never changes, it just accrues interest. In a digital gold account dollars are exchanged for physical gold. That amount of physical gold never changes but the value moves up or down with the daily price of gold. Would that be a correct description of a GoldMoney account?
Turk. Yes, that description is accurate because in GoldMoney you own gold, not dollars. You use your account like a bank account, but a GoldMoney account is different in two important ways. First, your account is denominated in goldgrams and mils, not dollars and cents. That's because you own gold sitting in secure storage in England or Switzerland in vaults owned and operated by Via Mat International, the big Swiss storage company. The second difference is that there is no counterparty risk. This point is important, and I often use the recent bank-run at Northern Rock to explain counterparty risk. Namely, you are dependent upon the creditworthiness of the bank where you deposit your money.

Occasionally people then ask: "But don't I have counterparty risk when I store gold with GoldMoney?" The answer is a definite no. Your gold is not dependent upon GoldMoney's creditworthiness. If GoldMoney were to go out of business, your gold would be safe. In contrast to banks, you do not "deposit" your gold in GoldMoney. You simply authorize us to store it for you. There is no change in title - no change in ownership - of your gold, which contrasts with banks. When you deposit money in a bank, the ownership of your money changes. The bank now owns your money, and they give you a certificate of deposit or bank statement evidencing their debt to you, making you dependent upon the bank's creditworthiness. That's counterparty risk.

There is a risk with GoldMoney, but it is performance risk. Our customers have the risk that we will act and do things as we say. To overcome this risk, we have strong governance procedures, which mitigate performance risk. Consequently, these strong governance procedures, some of which we have already discussed, provide our customers with assurances of integrity that their gold is safe.

DGC. Investors in today's world, at least most American investors, seem to have faith in the US government. They believe that the government could and would bailout the banks if they get in trouble. Does GoldMoney operate with the full backing, guarantee or assurances of any government? Is there a possibility of anyone bailing out GoldMoney in the face of big problems?

Turk. Well, again your question centers upon counterparty risk, but before I address that, I question your premise about faith in government. Just look at the surveys asking people whether they expect to receive Social Security when they retire. Add to that the countless people directly impacted by Hurricane Katrina and the people who were just watching, all of whom learned not to rely upon government promises. And many more government promises are going to be broken in the years ahead. So do you really want to rely on a government promise to bailout your bank? And as we are now seeing, banks do need bailing out from time to time.

Anyway, to get back to your point, regardless what happens to GoldMoney, the gold and silver owned by our customers is safe because it is sitting in a secure vault, insured, and protected by our governance procedures and policies.

DGC. Adding Switzerland as a vault location is a great alternative for your customers. Do you have plans to add more friendly jurisdictions in 2008?
Turk. Yes, we plan to add more vault locations in 2008, but "friendly" is in the eye of the beholder. For example, many French do not like to store gold in Switzerland because they believe it is too close to the French taxman. They prefer the United States. But many Americans are reluctant to store gold in the United States because of the previous confiscation, where gold owned by Americans - but not other nationalities - was taken by the federal government. Our aim is to open a number of vaults around the world, and let our customers choose where they would like to store the gold and silver they own.

DGC. When an account holder sells his position, do you have any limits on the client's outflow of sale proceeds?
Turk. No, we do not restrict a customer's ability to exchange gold for a national currency. Also, all sales regardless of size are done at the spot price. We do not take any fee on sales. If the amount is $30,000 or less, we can usually fix 24/7 the price at which the gold is being sold. Larger amounts are completed at the first London fix after we receive the order.

DGC. Who developed or created your KYC and AML policies? Are they based on a bank's policies and if so what jurisdiction?
Turk. We operate in the island of Jersey in the British Channel Islands, which is one of the world's largest financial centers and one of the most respected countries for its KYC and AML policies. So we follow the law in Jersey, and therefore our policies are the same for all financial institutions in Jersey. The Financial Services Commission is a government body that ensures the country's policies in this regard are followed. Thus, if you were to open a bank account in Jersey, you would need to follow at that bank the same KYC and AML policies that we follow in GoldMoney.

DGC. During the mid 1980's you were manager of the Commodity Department of the Abu Dhabi Investment Authority. In November just weeks ago, Citigroup obtained a $7.5 Billion dollar cash 'investment' from the Abu Dhabi Investment Authority. The purchase gives away a 4.9% equity stake in Citi and makes Abu Dhabi the bank's largest shareholder. The equity units purchased pay an annual fixed rate of 11% ! Do you have an opinion on this transaction?
Turk. We can draw some conclusions about Citibank. To pay such a relatively high rate makes Citi looks desperate for money, which is probably an accurate assessment. Recent events and in particular, announcements from them indicate that they have severe asset quality problems, so the counterparty risk people incur when they lend or deposit money in Citibank has risen considerably as a result. Higher risk means lenders will require a higher rate on any loans they extend to Citi.

DGC. In October of 1929, the US stock market collapsed and the great depression gripped America for many years. I would call the stock market crash a 'trigger event'. Based on what happened during that period in American history, do you see any similarities to the present day US economy and financial condition?
Turk. Absolutely. The major similarity is the growth of debt, but this comparison needs some explanation. The growth of debt over the past ten years totally dwarfs the growth of debt in the 1920s, so the financial situation is even more fragile and unstable today than it was in 1929.

DGC. Can you tell us what sort of 'trigger event' could cause that type of collapse today?
Turk. I do not expect a stock market crash. Some stocks will of course crash, but I think the major averages will climbed higher in nominal dollar terms. That happens in any country before the currency collapses, which is what I expect to happen to the dollar. It's on the path to the fiat currency graveyard and unless some corrective action is taken - and I see nothing being done in this regard - it will sooner or later get there, and probably sooner than most people think. Hundreds of fiat currencies are buried there, including the Continental, this country's first national currency.

DGC. Goldman Sachs' global markets team in its top 10 trades list for 2008 has recommended investors short gold. Their call is for investors to short gold priced in U.S. dollars in order to capitalize on a gradual relaxation of US credit concerns. Is this a good idea?
Turk. Not in my view. First of all, shorting anything is a dangerous proposition. Only experienced traders should get involved with shorting. Second, gold has been rising for seven years in a row. Why should it reverse course now? I see no reason to expect gold's bull market to stop here. In fact, I expect a 4-digit gold price in 2008.

DGC. In a 2001 interview, you said, "There's no doubt in my mind that DGC will become central to global ecommerce." Do you still feel this way?
Turk. Yes, I do. What I am saying is that gold will once again become central to global commerce, and it will happen in a technologically advanced way, namely, digital gold currency - not paper gold currency, coin gold currency or any other form.

DGC. If I buy goldgrams, can I have them delivered?
Turk. You can redeem goldgrams for LBMA gold bars if you have enough of them. One LBMA bar typically weighs over 12,000gg, which is about $300,000. If you have less than that, you can exchange your goldgrams for coins or small bars. Just contact Kitco and tell them what kind of fabricated gold you want, and tell them you will pay for your purchase with goldgrams.

DGC. I've bought GoldMoney using the US bank account payment option. It was extremely easy and I felt supremely confident throughout the purchase that GoldMoney could recognize me as the actual account holder and owner of the US bank funds. While I don't see this as a possibility, I have to ask, do you experience any fraud with purchases of GoldMoney?
Turk. There are always fraud attempts because crooks are a tenacious lot. But the number of attempts is inconsequential. For example, in the past twelve months we processed over 18,000 electronic check transactions, of which 8 were fraud attempts. And these 8 were stopped so no money was lost.

So the crooks tend to leave us alone because they know we are vigilant and that our anti-fraud procedures are so good that they will come up empty-handed. They therefore pick on easier targets.

DGC. Since 2001 when GoldMoney started have you ever had a security breach where account holders' information was leaked out?
Turk. No, it has never happened. Our security is really that good. We have great security procedures, and our security team does first-class work.

DGC. What additional new products or services can we expect to see from GoldMoney in the coming months and years?
Turk. I can tell you what we are working on, but I don't know the launch dates yet. In the pension plan area, we are trying to develop an IRA product for customers in the US, along the lines of the SIPP product we launched this year in the UK. We are going to add purchases and sales of silver in Switzerland, so silver can be stored in the Zurich vault. We also plan to add some basic foreign exchange trading, so customers can switch between the different currencies in the Customer Segregated Funds account. We also have a few other things that I would rather not mention because they are still early in their development.

DGC. Can you tell us if you have found any common factors between all GoldMoney users?
Turk. We really haven't surveyed our customers in detail, but we do see some common characteristics. Foremost among these is their desire to diversify their wealth. They see gold and silver as important assets that enable them to achieve that goal, and they choose GoldMoney because they want physical metal, and not some 'paper' product. These paper products give people exposure to the gold price, but come with counterparty risk. Our customers do not want that risk. They want physical metal and know that is what they are buying in GoldMoney. Also, they are confident in our governance and do not want the inconvenience and higher cost of buying and storing precious metals themselves.

DGC. I was talking to a client yesterday and he is looking for an alternative for his company's short term money market fund and he asked me about GoldMoney. Do you have a lot of corporate account holders and are corporations moving their national dollars into the GoldMoney's safe financial environment?
Turk. Back in our early days, only a few companies opened accounts. But now that we are bigger - we're storing $250 million of gold and silver - more companies are taking a closer look. We believe that it's an area that will increase in coming years, and in this regard, we have some plans to make GoldMoney more company friendly next year. The payment process is one area we intend to upgrade. To give you one example, companies tend to make payments with two signatures on a bank check. We plan to have a similar functionality within GoldMoney.

DGC. In January of this year, the spot price of gold was at $610 USD per ounce. In a GoldMoney online account, if I had made a purchase at that time of one troy ounce and left the GoldMoney account untouched until today, disregarding any minor fees, approximately what USD value would be reflected in my GoldMoney account today? Keep in mind, today that the spot price for gold is just under $800 per ounce bidding at $795. What is my $610 gold GoldMoney deposit worth and immediately liquid for today?
Turk. There is a 1/10th of a goldgram monthly account fee, which isn't minor if you only have a small amount of gold in your account. That fee is presently about $2.50. But ignoring that, your gold is worth $795, and that is the amount you would receive if you chose to exchange your gold for dollars.

DGC. Where would you like to see GoldMoney in 10 years?
Turk. Good question. Obviously I expect GoldMoney to continue growing, but I think there's a more important answer to your question. Technology today enables gold to circulate as currency in a way that is far more efficient than any national currency, and further, anything you can do today with a national currency you can do with goldgrams.

So I would like to continue expanding our scope of products. For example, we are often asked to issue a debit card that people can use to access their goldgrams. I'd like to see that happen in the next year or two, but longer term there are ways to use goldgrams that people aren't even considering yet. How about buying and selling stocks using goldgrams in payment? How about an efficient online stock exchange where the shares listed and traded there are quoted in goldgrams?

Basically, anywhere we today use national currency we could also be using goldgrams instead. There are no technological hurdles to stop that from happening. So as GoldMoney grows, I hope to see goldgrams used in more and more ways.

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