Matt Chuen

20th February 2019

A reason to return to the gold standard

I know, speaking about returning to the gold standard can seem archaic, however, something that really grabbed my attention recently was an article covering an IMF blog post.

In this article, two IMF economists discussed the introduction of e-money as a way for central banks to implement as negative an interest rate as necessary for countering a recession, without triggering large-scale substitutions into cash. Perhaps it stood out as something to take note of because of the many other developments taking place around this.

E-money to implement negative interest rates is being explored while, despite negative interest rates already in place, the European Commission just slashed its 2019 growth forecast for the 19-nation euro-area economy from the 1.9 percent it projected in November to 1.3 percent.

So, with European growth slowing but negative rates already in place, might we see a case being put forward to take rates even further into negative territory in an attempt to stimulate economic activity? But at the same time with e-cash in place to stop one from taking cash out of the bank and putting it under the bed. Is it also any surprise then that the ECB recently posted this video on their twitter about how QE helps reduce inequality?

To the US, then, where the San Fran Fed wrote earlier this week that ‘allowing the federal funds rate to drop below zero may have reduced the depth of the recession and enabled the economy to return more quickly to its full potential.’

With the Fed funds rate at 2.5%, rates are still low by any historical standard, giving the Fed less room to move in the face of any downturn. At the same time, the Fed has gone from expecting to hike three times in 2019 a few months ago to removing all references to future hikes in January’s FOMC comment, while noting the cross-currents that the economy is facing. A decidedly dovish turn. Will the Fed need to turn to negative interest rates to stimulate growth, too?

If central banks are considering the use of digital currencies to enforce negative interest rates on depositors, what are the other options? Kinesis Money could be one answer. Kinesis is creating two digital currencies based 1:1 on physical, allocated gold and silver. Kinesis will charge a 0.45% transaction fee for the use of its digital currency network, but redistribute a portion of these fees as a ‘yield’ to further incentivise the use of its system for transactions.

These two currencies will allow one to access day-to-day spending outside of the banking system and remove exposure to fiat currencies, by giving liquidity to gold and silver. It will do so through the use of innovative blockchain and exchange technology, and a debit card attached to the Visa network.

Significant technical developments have already been completed and this year is set to see the release of a new monetary system that aims to change the way people see and use gold, Kinesis Money.

So perhaps, it is time to return to the gold standard, digitally.

Any opinions, news, research, analyses, prices or other information contained in this article is provided as general market commentary and does not constitute legal, tax, accounting or investment advice.