TECH/ECON: Digital Currency

From: Chris Rasch (crasch@openknowledge.org)
Date: Thu Apr 26 2001 - 10:18:25 MDT


-------- Original Message --------
Subject: [e-gold-list] Excerpt of Barron's article mentioning e-gold
Date: Thu, 26 Apr 2001 10:03:58 -0500
From: "James M. Ray" <jray@free-market.net>
To: "e-gold Discussion" <e-gold-list@talk.e-gold.com>

This is a "fair use" excerpt (I hope) but please go out and buy the
current issue of Barron's, which will be on sale until the new issue
comes out on Saturday. The article is titled "Making New Money"
and it's by Jack White and Doug Ramsey. Any typos are mine. It's
on page 59 of the current (April 23, 2001) issue in the Editorial
Commentary section.

        ...
        ...Financial innovators will create new stores of value
        and new legal tender for e-commerce. Ultimately, those
        digital currencies that offer the best combination of tech-
        nology, utility, liquidity, transparency and long-term value
        will outshine the euro, the dollar, and the yen.
             The surprising thing is that it's taking so long. The
        decline of the gold standard, competitive devaluations
        and tariff hikes dried up international trade in the 1930s
        and should have destroyed the world's faith in fiat money.
        Instead, after World War II, the major economic powers
        devised an international monetary system at Bretton
        Woods that left central banks with the discretion to print
        money--a discretion most countries abused frequently,
        even after the collapse of that system in the 1970s. Since
        the 1940s, the dollar has lost 90% of its value.
             There are dozens of current experiments in online
        currency: DigiCash, e-money, iDollars, cybermoney,
        e-cash, eBucks, virtual cash, cyberbucks, CyberCoin,
        cybercash and more. Their sponsors, however, have
        put more thought into the brand names than the prod-
        ucts. They have attempted to create e-commerce pay-
        ment systems that are easy and secure but based on
        the dollar. They have created proxies for a traditional
        currency, rather than a new currency in its own right.
             But it may be only a short distance from virtual
        money to a full-fledged electronic currency, which we
        might call Electronic Trading Units, or ETUs for short.

        Good as gold

             ETUs would have to be immune to political pres-
        sure, and either fully or largely backed by tangible
        assets. E-currencies of the future will be only as
        strong as the groups issuing them. The ideal e-cur-
        rency might even be backed by gold. Encrypted digital
        units of the precious metal, even in tiny quantities,
        could in principle be used to pay for anything from a
        soft drink to a jet plane.
             One company, E-gold, already allows online users
        to settle payments using its currency, which is 100%
        backed by gold. Ownership of the gold changes, but
        the physical bullion stays put with the company, which
        is based on the Caribbean island of Nevis. The system
        also is transparent: Holders have real-time access to
        the total amount of e-gold in circulation, and the compa-
        ny's total bullion reserves.
             If gold remains a "barbarous relic," there still are
        other sources of strength for e-currencies. International
        trading companies such as Cargill, Mitsubishi and Jar-
        dine Matheson handle large shares of international
        trade, so they could give an e-currency the strength it
        needs to get off the ground. After-hours trading systems
        and electronic communication networks such as Instinet
        and Optimark have already created virtual markets that
        could easily match buy and sell orders for e-currency as
        they do for stocks.
        ....

Remember, folks, please go out and buy the dead-trees version of
this whole issue of Barron's if you can. The rest of the article is also
well-done (the authors 'get' frequent-flyer miles as a privately-issued
currency, for example) so it's worth buying the issue. Thanks.
JMR

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