Archives for August 2011

You have to eat your own dog food

Monday, 15 August 2011 by Dave Birch

[Dave Birch] Hmmm. Last time I was in the US I was in an Interesting lunchtime discussion. If you go to a restaurant in the New York, sit down, get served some ice water, and then open the menu to find a notice saying that they accept cash only and do not take cards, do you…

a) Pay $2 or whatever to withdraw cash from the ATM in the restaurant and they pay using that cash and leaving a generous tip.

b) Have a whip-round between you to try and drum up enough cash for the meal, but not for a tip, or

c) Get up and walk out.

Personally, I would go for option

d) Get up, walk out and then report the restaurant to the IRS for conspiracy to evade taxes and potential money laundering.

You have to stick to your guns on some things. I shall be back in the New World shortly and intend to test my theory. By the way, any of my English readers outraged by the criminality, tax evasion and corruption facilitated by cash can now vote for one of Her Majesty’s Governments new-fangled “e-petitions” on the topic. If we can get 100,000 signatures, then in theory they are supposed to discuss it in Parliament—come on over to the e-petition website to vote. I hope my employer won’t object to my non-party political campaigning!

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Personal service

Thursday, 11 August 2011 by Dave Birch

[Dave Birch] Hilarious.

I just called one of my card providers because I wanted more information about a transaction. I won’t embarrass them by giving their name here. I got through to an IVR…

“Please enter you card number”

I punch in 16 digits.

“Please enter you day and month of birth”

I punch in another 4 digits.

Get through to another menu.

“For XXX, press 1. For YYY, press 2. For ZZZZ, press 3.”

I press 3.

Music.

After a short wait, a guy answers. The first thing he says is “what is your card number?”.

I tell him “it’s the one I just punched in”.

He says “That’s a different system. We can’t see the number from this system.”

So I ask him “Why did they ask me to punch it in then?”

He says “Well from the card number then can tell whether its a Visa card or a MasterCard, so they can make sure your call comes to the right call centre”.

I say “OK, I get it. So you’re the MasterCard call centre?”

He says—and I swear I didn’t make this up—“Actually there’s only one call centre so all the calls come here anyway”.

And then he asks me for my card number again.

There isn’t an app for that. .

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers

�

Do we need money at all?

Wednesday, 10 August 2011 by Dave Birch

[Dave Birch] There is a phenomenon, well-known to economists, that is labelled “the double coincidence of wants” and is taken to explain the very fundamental first steps in the evolution of money. It is called the double coincidence of wants because it depends on two coincidences about things that are wanted. Let me explain.

Suppose I have a pig and you have a lawnmower. No trade between us is possible unless we happen to bump into each other at the very moment that I need a lawnmower (unlikely coincidence) and that you need a pig (a doubly unlikely kind of coincidence). Hence the end of primitive barter and the invention of a trade intermediary otherwise known, in the general sense, as money.

Thus, in a primitive economy, such as we have today, money is an inevitability because we either use it to overcome the double coincidence of wants or go back to being feudal serfs. Technology, however, can serve to increase the probability of the double coincidence and thus serve facilitate trade. Writing in Victorian times, William Stanley Jevons observed of the Victorian eBay (or “vBay”, as I like to think of it):

Within the last few years a curious attempt has been made to revive the practice of barter by the circulation of advertisements.The Exchange and Mart is a newspaper which devotes itself to making known all the odd property which its advertisers are willing to give for some coveted article. One person has some old coins and a bicycle, and wants to barter them for a good concertina. A young lady desires to possess “Middlemarch,” and offers a variety of old songs of which she has become tired. Judging from the size and circulation of the paper, and the way in which its scheme has been imitated by some other weekly papers, we must assume that the offers are sometimes accepted, and that the printing press can bring about, in some degree, the double coincidence necessary to an act of barter.

In the age of the interweb, it seems to me that there may be an opportunity to use another intermediary otherwise known, in the general sense, as identity. Here’s why. The double coincidence of wants does not exist as a dynamic in a fully connected world, because there will always be someone, somewhere, who wants anything at all, whatever it is. Let me explain.

I have a pig. You have a lawnmower. You want a pig, but I don’t want a lawnmower. I do, however, want a day’s golf. You don’t know anyone who has a day’s golf, but you do know that the golf club needs some paint. You swap your lawnmower for some paint and give it to the golf club. Then you ask them to give me the day’s golf, and I give you the pig. To our primitive forebears, the cost of resolving this transaction chain would have been utterly prohibitive. But tody we can resolve the long chain of intermediate coincidences, minimising each step by search, in a few milliseconds. In this way, it is possible to imagine trade taking place without money.

On the other hand, it is not possible to imagine it taking place without trust. If, at each step of this chain, the buyer had to institute a detailed examination of the seller in order to determine the likelihood of them delivering the goods or services as advertised, the chain would never resolve in a reasonable time. With some kind of trust infrastructures, while fraud may never be eliminated, it can be controlled to the point at which trade may flourish. Let me explain.

Imagine the chain or barter is being resolved through a system much like eBay. I might set my turbo-barter client to auto-resolve at 100 stars. So you look for someone who wants a lawnmower and you find a taker who has 70 stars and one who has 200 stars, so the software automatically selects the 200 star taker and moves on. Now it’s looking for someone who wants paint, and it finds the golf club. The golf club has 6,500 stars so that is auto-resolved too. In a few milliseconds the whole chain is resolved and everyone knows where to take their goods or deliver their services. You the deliver the lawnmower to Alice, she delivers the paint to Bob, the golf club sends you a day pass. Everyone goes up one star.

Beautiful.

Except… For this kind of auto-trust to work, I need to know that Alice really does have 200 stars. And for that, I need an identity management infrastructure. Note that I don’t need to know who Alice is, I only need to know certain facts about her. So as long as the infrastructure enables me to determine those facts, no problem.

Now imagine a world without money. A world where eBay has been replaced by tBay, the trusted online Exchange & Barter for the 21st century and beyond.

I want to buy a bus journey into town. I got to tBay and select “Arriva Bus Day Pass”. My preferred unit of currency is kCalories, so my phone tells me that Arriva have set a reserve price of 3.5kCal. I know that bus tickets always sell for their reserve price, except in very special circumstances. I click OK.

The system now starts two searches: one from my tBay account, where the things I have as surplus are listed, and one from the Arriva tBay account, where the things that it wants are listed. in a couple of milliseconds the bargain is struck: because I volunteer at a local care home for two hours a week (I play Bridge with the residents), I have plenty of surplus time in my Time Bank, so my phone redeems an hour of this time for some surplus kilowatt hours of electricity the care home has from it’s solar panels (it used to feed these into the grid, but now it uses them to negotiate barter deals) and the care home passes these to Shell. Shell credits three litres of diesel to Arriva. Everyone is happy. My phone confirms that a deal has been struck. I know nothing about the electricity, or the diesel, or whatever. I just know that there’s less time in my time bank and a bus ticket in my m-wallet.

At every stage in this chain, the identities have been checked and the credentials validated using cryptography, tamper-resistant keys and interoperable credentials. The Time Bank sent a digitally-signed message to the Care Home, the Care Home used the Time Bank’s digital certificate to check the signature, and so on.

Proving, once again… identity is the new money.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers

�

Practical NSTIC

Monday, 8 August 2011 by Dave Birch

[Dave Birch] The last� Smart Card Alliance annual conference was a good opportunity to catch up with some of the thinking on the recently released National Strategy for Trusted Identity in Cyberspace (NSTIC). I went to listen to a series of talks about NSTIC and got involved in a fair amount of coffee break discussion with delegates. As a result of this, I continue to think that NSTIC represents a real opportunity for digital identity to make a difference in many practical case.

Personally, as I’ve said before, I like NSTIC and have been encouraging our clients to develop strategies toward NSTIC. Since virtually none of them spend their entire time thinking about identity infrastructure, I’m trying to find ways to simplify and condense some of the key issues. If we step back to look at the intended prosaic impact, it’s about better security and fewer passwords, which translates in the short term into a combination of two-factor authentication (2FA) and federation.

The president wants consumers to use strong authentication, something more than user name and password, which will most likely add another security factor, say officials familiar with the project.
For example, user name and password is one-factor security, something you know. But additional factors can be added. A token or digital certificate can be a second factor, something you have, resulting in stronger two-factor authentication. If you add a fingerprint or other biometric, something you are, it’s increased to three-factor security.
[From� NFCNews | Potential technologies that consumers may use for online ID]

In that specific exposition, there follows an interesting, but confused, list of options. I’d like to suggest a more straightforward taxonomy, based on a digital identity infrastructure (which doesn’t exist, of course). The article, to my mind, confuses the distinct bindings between the virtual identities that exist in the Net and the real identities that are connected to. This is why it is useful to introduce the notion of digital identity in the middle (which would also solve the “real names” problem that is causing so much grief at the moment, but that’s another story). So then we get the two categories of technology that might be used to solve the key problems and work within the NSTIC framework to make a real difference to the world of online identity. These are:

Linking virtual identities to digital identities. The article suggests that digital certificates and PKI might be a good way to do this and I agree. Think of a digital identity as a private-public key pair: so long as there is some tamper-resistant store (which has generally meant a smart card) for the private key then the digital identity is portable and convenient. The natural place for this tamper-resistant chip is, of course, the mobile phone (or, at least, the device-formerly-known-as the mobile phone) because it provides both local (via NFC) and remote interfaces to the chip.
Linking digital identities to real-world entities. Right now this is largely achieved through passwords or PINs, but the article suggests that passwords will be supplanted by biometrics. I think this is plausible, although it is not an immediate requirement for mass market use. People will want to use NSTIC to log into The Telegraph and the DVLC, not to reset nuclear missile launch codes.

By implementing the right technology for each of these links, we (i.e., the industry) can make NSTIC simple and practical. If we can do this, then I think that the use of digital identity will permeate through almost all of our day-to-day interactions. I think some people view NSTIC and being a kind of non-governmental ID “card” and therefore tend to think of it for a particular set of applications but these are only a start. To get an idea of what might be achieved, have a look at how a technologically-advanced ID card is used.

The new Estonian e-ID card features a PKI application embedded in the contact chip and allowing online authentication and digital signature by qualified electronic certificates. This technology enables citizens to execute a large variety of e-government and e-commerce services, and makes it possible to verify and validate the documents in electronic transfer. Additionally, the e-ID card offers the owner access to the local public transport network.
Furthermore, the BRP card contains a contactless chip with special functionalities when travelling within the Schengen area. The application fulfils the most recent ICAO norms for biometric identity documents, such as a fingerprint check.
[From� Trüb AG]

This card-based implementation suggests to me a way of funding the improved implementation of NSTIC as well. If mobile operators would provide this functionality on the UICC and make it available to banks and other to use, the consumers could use that solution—generating data and messaging traffic for the operators—or for consumers who didn’t want to use the smartphone app, there would be a card to buy.

It seemed to me at the Chicago event that some of the thinking about the technology platform was underdeveloped. We have some fantastic tools available to us now that we can use to create a digital identity infrastructure that would have been hard to imagine a few years ago. Starting from where we are, the realistic platform is the cloud plus the mobile phone which would turn the mobile into an identity selector and

One factor that will have to be taken into account, though, if mobile operators are going to provide this platform is that of regulation. I can see that one of the real attractions of this business for mobile operators is that as both an identity provider and as the authentication platform, they can assemble an incredible amount of personal data.

But as of now, the NSTIC Strategy document and the Implementation Plan lack crucial detail about regulating IdPs. By definition, Identity Providers will be able to link all of an individual’s personal transactions. Without regulation, larger IDPs will be able to market, share or otherwise derive value from vast storehouses of transactional data, much like today’s credit reporting agencies.
[From� NSTIC at a Crossroads « Because I am Here]

This is a very good point. We do have to find some kind of balance (which may be through a different basic structure, such as is provided by something like� MyDex) to give the stakeholders incentive to create an excellent infrastructure. We also have to find a fair basis for the mobile operators and others to create a working set of relationships.

Absent new laws to make this kind of grand identity federation happen, we will still need new contracts—brand new contracts of an unusual form—struck between all the parties. It’s complicated by the fact that banks & telcos don’t naturally see themselves as “identity providers”, not in the open anyway
[From� Digital Identity: The sorry state of id and authentication]

One way to do this might be to see the mobile operator provide two distinct functions via separate business entities: the identity platform that is made available to all (in the great tradition of EU regulation in an “open, transparent and non-discriminatory” manner) and the identity and attribute provider business that uses that platform just as many others (e.g., banks) will. The practical use cases are appealing: you go to log on to your bank, you get a message on your phone, you punch in a PIN or something and you’re logged in no problem. Now you go to log on to the DVLA, you get a message on your phone, you punch in the same PIN and you’re logged in no problem. Consumers will therefore have access to a highly functional infrastructure without having to understand keys, certificates or anything else.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers

Don’t do as I do

Thursday, 4 August 2011 by Dave Birch

[Dave Birch] Government can be ambivalent when it comes to cash, by which I mean the notes and coins “in circulation”. In 1875, Jevons explained (in� Chapter 18 of Money and the Mechanisms of Exchange) a source of this tension and how it was that the Treasury was some £200K per annum better off because of the circulating medium of exchange. He says

The character of the contract between the government and the bank is of too intricate a nature to be readily fathomed or described, but it substantially amounts to the government borrowing the larger part of the fifteen millions of deposits, and allowing the bank to use the rest to cover the cost of printing and managing the note circulation.

This why there is a tension between the parts of government who profit from the interest on money in circulation and the parts of government who see cash as a drain on resources. In some countries there is also a tension between the parts of government who try to collect tax and government ministers who want to minimise on the overheads associated with complex record keeping.

Until a few weeks ago Giulio Tremonti, Italy’s finance minister, was paying one of his former government advisers €1,000 a week in cash for the use of a Rome apartment. Quite why Mr Tremonti felt it necessary to make his rental payments in cash, rather than by bank transfer or by cheque, remains something of a mystery… It is inconceivable that he is unaware of the role that cash payments play in perpetuating the chronic Italian disease of tax evasion.
[From� Renting in Rome – FT.com]

As the FT politely noted, “Mr Tremonti’s cash payments set a poor example to Italian society.” Indeed they do. In fact they set a poor example for other societies to, including our own. I think that anyone who pays rent, or builders, or car dealers in cash should be prosecuted for conspiring to defraud Her Majesties Revenue and Customs. But that’s not to say that everyone in Italy is as pro-cash as the finance minister. The banks there recognise the high cost that cash imposes on Italian society as a whole.

The Italian Banking Association has declared “war on cash” [saying] it costs banks and companies as much as 10 billion euros ($13.3 billion) a year to process cash payments, mainly in increased security and labor.
[From� Italian Banks Wage `War on Cash’ as Consumers Pass on Plastic – Bloomberg]

Well yes, but the efficiency of the banking system is only one of the drivers for cash replacement. In large parts of Europe, particularly Southern Europe, the financial crisis will, in my opinion, turn out to be a much more important driver for the adoption of electronic payments not merely for consumer convenience but for cash replacement.

Companies often pay salaries in cash to evade taxes, particularly in Italy’s southern region, where organized crime is prevalent.
[From� Italian Banks Wage `War on Cash’ as Consumers Pass on Plastic – Bloomberg]

This should simply be illegal. End of. Bear in mind the scale of this problem at the time when the Italian government’s ability to repay its debt is a matter of grave concern and economists are openly discussing default.

Italy loses about 100 billion euros of revenue a year from untaxed transactions in the so-called underground economy, which amounts to about 22 percent of gross domestic product, according to government statistics. The Finance Ministry agrees with ABI proposals to make public offices accept electronic payments and install point-of-sale terminals.
[From� Italian Banks Wage `War on Cash’ as Consumers Pass on Plastic – Bloomberg]

So even if the finance minister isn’t taking a stand against cash, the finance ministry is. As, as noted, are the banks, who have put forward a simple plan to get started.

Banks also want a ban on cash salaries…
[From� Italian Banks Wage `War on Cash’ as Consumers Pass on Plastic – Bloomberg]

Now that’s fighting talk, if you ask me. It’s also not completely bonkers: some countries have done this already (in UAE, for example, you are not allowed to pay migrant workers in cash) and I think it makes sense. It doesn’t mean forcing people to have bank accounts, by the way, because for a great many people simple prepaid instruments would be a better choice for them and a better choice for the banks (who are forced to waste money providing “basic bank accounts” to people who don’t want them. Paying salaries electronically is the first step but it’s going to take something like that to make serious inroads into cash-based tax evasion. We need to make all transactions electronic as well.

And yet cash on the table is simply the only way to do business—even when buying homes or entire companies—for many people in Argentina. Transferring such money electronically would solve the problem in an instant. But in a society where income tax evasion runs about 50 percent and taxes eat up 65 percent of the money people do declare, many people are reluctant to use banks that way
[From� Argentines risking all to carry huge wads of cash – Yahoo! Finance]

The point, though, is that if banks make cash reduction a strategic issue, then they can develop market-specific tactics and make the effective in the short term. Look across the water to where the National Irish Bank (NIB) is blazing a cash-free trail across the Emerald Isle.

By the end of this year, all of NIB’s remaining 33 branches will be cash-free. (About a fifth are already cashless.)
[From� Farewell cash: e-banking is becoming more popular but some risk being left behind – Surviving the Recession, Personal Finance – Independent.ie]

I probably seem a little blinkered in these comments, because not all cash use is because of tax evasion, naturally. Some if it is for money laundering, corruption, drug dealing and organised crime.

And criminals prefer cash. Whitey Bulger, the Boston gangster who lived in Santa Monica for 15 years, paid his rent in cash, and stashed thousands of dollars in his apartment walls.
[From� As Plastic Reigns, the Treasury Slows Its Printing Presses – NYTimes.com]

Note what was stashed in the walls. Not prepaid Visa and MasterCard products, not gift certificates from major retailers and not Oyster cards. Cash. It’s time for governments to get serious about cash and whatever the treasuries might say about seigniorage loss recognise that cash does significant damage to the economy. Other countries are beginning to take a stand and tackle cash use head on.

To discourage the use of raw cash in economic transactions in the country, the Central Bank of Nigeria (CBN) yesterday in a circular to all banks, Cash-in-Transit (CIT) operating firms, payments system service providers, as well as money card acquirers, issuers and processors, said that the new policies, including payment of increased penalties for cash transactions by individual and corporate bank account holders, are to help reduce the high usage of cash as well as moderate the cost of cash management among operators in the country’s financial system.
[From� Central Bank sets new cash withdrawal limits]

Good for them. Remember, the costs of cash fall disproportionately on the poor, so in developing countries that means that most of the population pay the costs of cash while the benefits accrue to the few.

According to the CBN, about N150 billion is spent yearly to produce, store, transport, protect and destroy naira notes.
[From� The Nation – CBN’s drive towards cashless economy]

That’s a billion dollars per annum that could be invested in more productive sectors of the economy, so no wonder any intelligent government would be working to actively reduce the amount of cash in circulation and to actively support the transition to ceaselessness at points of sale and service.

The CBN announced its intention to implement the cashless banking policy with effect from June 2012. It drew a lot of apprehension from the general public and stakeholders.
[From� allAfrica.com: Nigeria: World Bank Endorses CBN Cashless Banking Policy]

It’s a bit like the announcement of the end of cheque clearing in the UK. I hope the CBN demonstrates more backbone that us Brits did in the face of reactionary whingeing. I hate the UK U-turn on cheques, not simply because my clients are from the e-payments sector but for what is says about the UK’s vision of itself, its dreadful backward-facing non-technologically informed leadership and national aspirations and trajectory as a supposedly developed nation. A truly forward-looking nation would move in a different direction. Look across the water to the Netherlands, where cash is on the way out in retail.

Marqt is a new concept-store, where you can get a wide selection of groceries, delivered directly from local farmers. It’s has the quality products you’d expect from an organic market, but the streamlined experience of a modern store, which means no cash, only PIN.
[From� Marqt – Amsterdam, Netherlands – Shopping]

The use of language in this review is both illustrative and informative. A “modern store” means, amongst other things, “no cash”. I couldn’t agree more. I used to live in the Netherlands and have fond memories of my time there, but these are now being subverted by the green-eyed monster of jealousy!

Personally I live in a up-class village just outside of Amsterdam. In my village (7000 inhabitants) we have a supermarket that accepts no cash after 6PM whilst between 4PM-6PM only one cashier accepts cash. The IKEAstore in Amsterdam has 15 cashier-outlets: 3 for cash and 12 card-only.
[From� Are Central Banks Killing Cash? | LinkedIn]

I live in an “up-class village” just outside of London and when I last went to the pub I had to walk round to an ATM to get cash (at my time and expense) because the pub only takes cards for transactions over £10. Perhaps the government should look at Korea and other economies where retailers are given a tax break to share the proceeds of cashlessness.

According to Deputy Minister of Taxes Sahib Alekberov, serious tax credits will be submitted to the persons implementing cashless payments using plastic cards
[From� News.Az – Implementation of large cash payments to be banned in Azerbaijan]

OK, so maybe “back-to-Baku” isn’t a great rallying cry. We need to find a better figurehead to take the British public forward on a journey to a more efficient and more equitable economy. I don’t really understand modern politics, but I think getting an old pop singer on board might be an excellent first step.

“There are no direct practical reasons, as far as I can see, to have coins and banknotes,” wrote Abba star Bjorn Ulvaeus in a recent blog post. “There are obvious advantages in getting rid of them. Sweden should be able to be the first country in the world to do this.”
[From� The Monetary Future: Sweden Considers Cashless Society]

Sweden is certainly an advanced nation and we should look to them for guidance and direction in many fields. But this isn’t one of them and I don’t want our United Kingdom to come second. We may not have Abba, but we do have� a daft government initiative on e-petitions and an endless supply of nutters to propose them. So I hope that you will sign my e-petition to abolish cash and cheques in the UK within a decade as soon as it is approved. Watch this e-space.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers

Golden moments

Monday, 1 August 2011 by Dave Birch

[Dave Birch] The price of gold has been climbing steadily: it’s gone up a third in the last year, surely a sign that people are disenchanted with other asset classes in general and fiat currency in particular.

The fixation on gold has led to a bizarre development: the gold ATM. I remember noting this a while back, but since then yet another swathe of gold-dispensing ATMs have been announced, this time in Turkey.

Thus far, all 64 Kuveyt Turk ATMs installed in Istanbul have been upgraded to offer 1 and 1.5 gram ingots of gold bullion as well as banknotes. The bank has contracted with Wincor Nixdorf to retrofit the facility to its national network of 180 machines by year end… The mini gold bars are not dispensed through the banknote output chute, but via a special coin output module that is retrofitted to the ATM. The gold bullion is packed inside a transparent plastic coin roughly the same size as a two-euro coin.
[From� Finextra: Turkish bank retrofits ATMs to dispense gold ingots]

There’s quite a few of these around. I remember Forum friend Chris Skinner� talking about the one he’d come across in the Middle East.

Germany’s TG-Gold-Super-Markt installed a gold bar dispensing ATM in the lobby of Abu Dhabi’s five star Deluxe Emirates Palace hotel last year, and outlined plans to roll out 500 of the machines in Germany, Switzerland and Austria.
[From� Finextra: Turkish bank retrofits ATMs to dispense gold ingots]

How these would fare in the UK I’m not sure – I suspect the ram-raiders and� JCB-jackers would be out in force—but there probably are enough people. These are going to become if not commonplace at least not unusual in the US, too.

A German firm that installs and manages gold vending machines aims to introduce them into the United States this year… Thomas Geissler, creator of the Gold to Go brand and chief executive of Ex Oriente Lux, told Reuters on the sidelines of the London Bullion Market Association conference that the company aims to issue a “couple of hundred” machines next year.
[From� ATMs That Sell Gold Bars Are Coming Soon to America – CNBC]

The early experiences there seem promising, from the point of view of the provider, and seem to indicate that, however bizarre it may seem, there are people out there who really do want to convert the cash to gold (as well as those who are forced to convert their cash to gold: see� here,� here and� here, for example):

In the US, PMX Gold has set up a banking division with the aim of introducing gold dispensing ATMs nationide follow a pilot run at a shopping mall in Boca Raton, Florida, that saw $270,000.00 in gold sales dispensed through one machine in roughly two and one half months
[From� Finextra: Turkish bank retrofits ATMs to dispense gold ingots]

Each time I see one of these stories, it leaves me flabbergasted (my favourite word this week). For example,

An ATM that spits out pure gold nuggets and coins has become such a hit among shoppers that one vendor has had to organise twice-a-week replenishment.
[From� gulfnews : Proving its metal: Dubai ATM gives gold]

I absolutely do not understand this. Why would anyone want to buy precious metals? I mean actual physical precious metals? It’s not like you’re going to smelt them or use them to make sophisticated electronic components. By taking home the gold nuggets, the customers are taking home risk.

A man who decided to store his precious metals in a vault at his home in Chilliwack, Canada, was robbed of US$750,000 worth of silver bars in broad daylight… The 52-year-old victim is still traumatized after burglars intruded into his house where he had stored his life savings in silver bars. Based on the current silver price at the New York Comex, the silver was valued at about US$750,000.
[From� Robbers get away with US$750,000 worth of silver bars]

Haven’t these people ever heard of� GoldMoney [disclaimer: my employer Consult Hyperion has provided paid professional services to GoldMoney] or any of the other online services? Plenty of other people seem to: Goldmoney alone has $2 billion in gold under management at the moment. (As an aside: I just worked out that my Goldmoney account has earned me an APR of 23.3% in the four months since I opened the account *)

I just don’t get it. Why would anyone mess about with physical gold that you can drop, lose, have stolen etc. And I bet it’s hard to buy anything from Amazon with it. I’m more than happy for people to send me physical gold. In fact, you’re more than welcome to try the experiment! ). But generally speaking I’d prefer it sent to my Goldmoney account. Here’s my account number in case you want to try it:

62-05-95-N (David Birch)

But back to the Turkish gold ATM. This, it transpires, though, isn’t all about currency costs and economic efficiency but tradition.

The bank says it wants to become Turkey’s leading retailer of gold to consumers, where demand is driven by the local tradition of investing savings in gold and making gifts of gold on the birth of children and at weddings.
[From� Finextra: Turkish bank retrofits ATMs to dispense gold ingots]

I still come back to my point: why would you invest savings, whether for yourself or for your children or grandchildren in physical gold? I just don’t see how this can make any sense in a crime-ridden backward-looking primitive economy on the edge of Europe.

GOLD coins and bars worth £200,000 were stolen during a daylight robbery of a Brook Green home.
[From� Local News – Fulham Chronicle]

South west London aside, there are some developing economies where gold is not only the mechanism for deferred payment but also a store of value and even the means of exchange.

Gold is a big deal in Vietnam. The average Vietnamese spends more of each Dollar of income on gold than anyone else on Earth. Total gold buying amounted to 3.1% of GDP last year. (By comparison, private gold purchases amounted to 2.5% of India’s GDP, while China’s were a mere 0.4%.)
[From� Gold, Gresham’s Law & the Dong – Buy Gold Online with the Bullion Vault – GoldSeek.com]

This is despite the US dollar being legal tender and gold imports being banned since 2008 (the gold is smuggled in) and a series of laws that are supposed to restrict its use inside the country. The measure of the success of these policies?

All told, an estimated 500 tonnes of gold – over $24 billion worth – is hoarded away, reckons Huynh Trung Khanh, deputy chairman of the Vietnam Gold Business Council. It’s hidden in mattresses and buried in the garden.
[From� Gold, Gresham’s Law & the Dong – Buy Gold Online with the Bullion Vault – GoldSeek.com]

The reason why this story caught my eye, though, was because it links to a presentation that I gave at the� Copenhagen Finance IT Region, part of the Danish Bankers Association, in May. I was taking about the co-evolution of money and technology and discussing how technology has shifted stores of value (eg, bank deposits) into mediums for exchange. In our pre-industrial economy, this was true of gold, so I was wondering out loud whether technological evolution in the post-industrial economy would take us back to those days or forward to some new kinds of currency.

But gold is not just a store of value in Vietnam. It is also used as a medium of exchange. Which is why, in the day-to-day sense, it also functions as money.In Vietnam you can put gold in a bank and earn interest. People quote house prices in gold, and pay for them with tael gold bars – each bar weighing approximately 1.2 troy ounces. This makes sense when you consider that Vietnam is a largely cash society. A single property can cost up to 4 billion Vietnamese Dong.
[From� Gold, Gresham’s Law & the Dong – Buy Gold Online with the Bullion Vault – GoldSeek.com]

With the biggest banknote being the� 500,000 Dong (about $20), you can see why people would rather use gold than 8,000 of these banknotes to buy a house! But could this happen in developed countries too? If people like Goldmoney manage to make gold sufficiently liquid and convenient at POS then would the consumers who go to gold ATMs go for electronic gold instead or is there something (potentially irrational) about the physical metal?

German community bank Fidor is partnering with physical bullion outfit GoldMoney to offer customers precious metals transactions though the FidorPay ewallet.
[From� Finextra: Germany’s Fidor Bank to offer retail access to precious metals via GoldMoney]

And I note that in the UK, Standard Life now offer gold (again via Goldmoney) as part of their pensions portfolio. It’s suprising to think, but there are some people out there who, frankly, don’t trust the financial system at all and so want all of their pension holding in gold.

The wife of Tunisia’s ousted ruler has fled the country with 1.5 tonnes of gold worth more than £35m, it was revealed today.
[From� Tunisian president’s wife Leila Trabelsi fled riots with £35m in gold bars | Mail Online]

What a wise pension decision! Since she used up her baggage allowance on the shiny stuff, her holding has gone up about £10m. She’s probably not very good on the interweb, or has trouble remembering passwords, but for the rest of us electronic gold is, I’m sure, a better proposition.

* Please note. This does not constitute investment advice and should not be seem a recommending any course of action. Anyone who invests in anything at all on the basis of anything that I say in a blog post is, frankly, an idiot and deserves whatever they get.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers