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Michael Bolser documents more manipulation of Comex gold price
Cyber currencies spawn 21st-century
gold rush, money-laundering fears
By Marcelo Ballve
The Associated Press
June 18, 2001
Puerto Rico -- In a strange quirk of fate, the Internet
may be breathing new life into an ancient currency --
gold.
Several Caribbean-based Web companies have begun
storing gold in places like Dubai, Zurich and London
and allowing Internet users to own pieces of the metal
and use it as an online currency.
So instead of relying on credit cards -- the dominant
online payment system -- people can opt for bullion-
based cybermoney, which purveyors tout as a quick,
cheap and private alternative.
An array of Web businesses already accept it.
quot;We've got people using it all over the world,quot; said
James Turk, founder of GoldMoney, a Bahamas-based
online payment business.
The advent of globe-spanning e-commerce has allowed
transactions to skip easily across national boundaries,
making for easy shopping for anyone with a modem. But
most transactions in cyberspace still involve national
currencies, fraught with risk of fluctuating exchange
rates and the cost of bank commissions.
Various Internet entrepreneurs have attempted, without
success, to devise digital payment schemes that would
simplify online purchasing.
The creators of digital gold believe they have the
answer.
Their currency offers an international purchasing
solution that economists have only begun to
contemplate: a stable, cashless currency that offers
instant purchasing power across borders.
Digital currency holders can use the Internet's
anonymity to buy things online, send money to other
users or simply exchange national currencies into
cyber-gold.
But the ease of hiding ill-gotten gains in virtual gold
scares financial crime fighters and regulators, who
struggle to track shady offshore banks and money
launderers.
quot;There is tremendous potential in using these products
for money laundering,quot; said US Secret Service agent
Eddy Lugo, who works for the Treasury Department in
Washington, D.C.
The speed and volume of transactions with digital
currency has investigators like Lugo worried the
industry will become ungovernable. So far, no digital
currency business has established bank-like standards
for reporting suspicious activity, Lugo said.
For their part, the digital currency entrepreneurs say
they seek legitimate customers who wish to make large,
low-fee online international transactions.
To set up an account at a digital currency Web site,
customers need only register with an e-mail address and
password. They then go to a currency exchange Web site
that converts payments via bank draft or wire transfer
to a gram-equivalent in virtual gold. That amount is
credited to their account.
Digital gold owners then patronize sites equipped to
receive it such as Bananagold.com, where you can use
its interface to shop at Amazon.com and spend 1.7
ounces of gold to buy a $450 Palm Pilot. At other
sites, the digital currency can be used to dabble in
Asian stock markets -- or play casino games.
The idea of independent currencies free of government
control is not new.
Neither are the accompanying fears of financial crime.
In the mid-19th century, as many as 8,000 US state-
chartered banks issued private currency that was often
redeemable for gold or silver. But some notes were
bogus or circulated by shadowy banks that folded
overnight. Forgeries were widespread.
After the Civil War, the government set standards for a
national currency that became the US dollar.
Worldwide, other governments snuffed out privately
issued bank notes and replaced them with money printed
by central banks and managed by monetary boards like
the US Federal Reserve.
But now, experts have pondered the resurgence of what
might be called private money. Mervyn King, deputy
governor of the Bank of England, thinks the Internet
could provide the catalyst for an end to the state
monopoly on issuing currency.
quot;Just like every country had its own national currency,
the Internet needs its own money too,quot; Turk said.
For the past 30 years, gold's importance in
international commerce has dwindled. Many currencies
used to be freely convertible into gold. But once the
powerful US dollar abandoned this gold standard in
1971, paper currencies based on floating exchange rates
became the main means of international exchange.
When the World Wide Web began to blossom, ideas were
hatched for anonymous digital currencies. Two
businesses, Digicash and Cybercash, failed to sell
online merchants on the idea. Both companies have filed
for bankruptcy.
The founders of the digital gold ventures believe their
products will eventually succeed. Humans have used gold
through the ages and will do so again, they argue.
quot;What we offer is gold you can actually use,quot; explains
E-gold's founder, retired physician Douglas Jackson of
Melbourne, Fla.
Launched in 1996 and registered on the Caribbean island
of Nevis, E-gold claims more than 200,000 accounts and
more than $14 million of currency in circulation.
A third company, Standard Reserve, is based in the
British Virgin Islands.
For now, most consumers will continue to use credit
cards for online purchases, argues Kenneth Clemmer, an
analyst at Forrester Research.
quot;Right now we're just a speck in the world economy,quot;
admits GoldMoney's Turk, a former Chase Manhattan
international banker. quot;But I'm optimistic that we will
grow.quot;
The three main metal-backed digital currency issuers
say they like the Caribbean's stability and a
hospitable business environment free of red tape and
legal hassles.
Those include secretive banking laws and no-tax or low-
tax regimes, and the opportunity to register companies
whose only presence may be a sheaf of papers in a law
office.
The digital currency issuers charge a small fraction
for transactions or for gold storage.
At E-gold recently, the fee was 0.0018 ounces of gold
for a 20-ounce gold purchase.
The companies say the virtual gold is backed by gold
bars stashed in their vaults and verified by chartered
accountants. E-gold, for example, posts a report on its
site by Ernst and Young.
The actual computers that host the accounts may be
elsewhere, though. GoldMoney, for example, contracts
South Africa's Dimension Data to run its web site from
the island of Jersey in the English Channel. E-gold's
system is operated by a partner company in Florida.
As business grows, so does scrutiny.
On Nevis, Finance Secretary Laurie Lawrence said
authorities who registered E-gold as an offshore
company still were trying quot;to get a handlequot; on how
digital currency operates and whether to regulate it.
The government of St. Kitts and Nevis is drafting its
first money-laundering regulations.
Both E-gold and GoldMoney said they are developing
safeguards, including certificates that aim to identify
clients as legitimate depositors with a clean financial
record.
And because the currencies are tracked by computer, all
transactions are recorded and traceable to an Internet
service provider.
quot;You can't build a solid business by catering to
criminals,quot; said Jackson.
The US Secret Service, which tracks financial crimes,
said it could not confirm money laundering was
occurring with digital currencies, but added that the
currencies were quot;wide openquot; to this type of crime.
On the Net:
a href=http://www.icegold.comhttp://www.icegold.com/a
