Digital Money &Its Impact on Gold 29
SUMMARY AND CONCLUSIONS
The question is no longer whether we will have digital money, but how soon it
will be before most paper currency and coin is eliminated, what portion of digital
money will be issued by private institutions, and how much of that will be gold.
Digital money can either be privately- or government-issued money whose value
is stored in electronic form in such devices as"smart cards," computer disks, and
personal digital assistants, including some types of cell phones. Digital money
should eventually become the dominant form of money because it is less costly to
handle than cash, cheques, or credit cards, and is more secure and efficient.
Digital money does require specialised, but inexpensive, hardware to make
transactions using the money on computer chips. It can be securely transferred
over the internet, or by infrared beams at almost zero cost. Digital money can be
in the form of digital coins or"tokens," or merely reside in accounts. Very secure
system designs and high levels of cryptography are required to make sure that
digital money is not subject to theft or counterfeiting. Digital money systems
may be"online," requiring an independent confirmation of every transaction, or
offline, in which the money is passed from device to device. The systems can
either be designed to be fully accountable or completely anonymous.
As digital money becomes more and more important and the use of traditional
government monies declines, central banks will become less important, and their
ability to influence national economies by traditional routes may decline. New
rules and legal procedures will need to be developed for the world of digital money,
and technologically obsolete regulations, like many of those designed to control
money laundering, will need to be eliminated.
Developers of new digital money systems will need to be aware of the many
patents which now exist. The digital world will allow the development of bearer
financial instruments, including money, bonds, stock, and financial derivatives.
Institutions that currently own or produce gold are logical developers and
marketers of digital gold products. There are no longer technological reasons
why private companies cannot create international gold-backed monies to compete
with government monies.

30 Digital Money &Its Impact on Gold
The first company offering digital gold (e-gold) is now in existence. Others are
planning to enter the market, notably GoldMoney. Success will depend on the
ability to design and market digital gold products that meet the needs of
consumers, businesses, and investors better than the existing methods of holding
gold, such as coins, bullion, and gold futures contracts, or have advantages over
existing non-gold-backed financial instruments, including government-issued
money. Issuers of digital gold money need the development of many liquid gold
debt instruments in which to invest, in order to offset the liability of the digital
gold money they have issued.
The gold industry is now faced with an historic opportunity, as well as a danger,
as a result of the new digital technologies. The debate as to whether gold will
have any future monetary role, or be relegated to becoming just another commodity,
is more likely to be settled by financial innovators than the world's politicians.
If financial innovators, including members of the gold mining and processing
industry, successfully develop and market digital gold products, gold's continued
monetary role will be assured. In addition to developing a digital gold
currency product, the industry should actively seek to get one or more governments
to recognize it as a legal parallel currency. However, if such innovation in
digital gold does not take place, while other digital money and financial instruments
are developed, the pressures to remove gold from any remaining monetary
role could increase.


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