Interview with Mr. James Turk Founder of GoldMoney.com part 2 of 2
Mark Herpel
January 13, 2010
DGC: When will gold, not paper, have a larger roll in the international monetary system and global economy? When will precious metal be the tool for settling international trade and not dollars?
Turk: Good question. The answer is that financial innovation comes slowly and takes time. For example, look at something as simple as the ATM. It took 15-20 years before they became widely adopted and used. DGC has been around for a lot less than that, and it is more complex a development than the ATM. So the widespread acceptance of DGC will take more time, but it is coming for two reasons. First, this 40-year experiment we have been conducting with fiat currency is failing, so it seems inevitable that gold will eventually resume its rightful role as currency at the center of global commerce, which leads to the second point. Gold won´t return to this role in an 18th or 19th century way. Gold won´t be moved around in coins simply because there is a more efficient, convenient and economical way to use gold as currency, namely the DGC made available through GoldMoney.
DGC: I was going to ask you if silver is now popular with your customers, then I visited the monthly report page http://goldmoney.com/report-monthly.html Out of $911 million in GoldMoney accounts, more than a third of that value is in silver! ($318 million) That is amazing. Has silver taken off more than you had expected when since GM started vaulting silver?
Turk: It has, but I really shouldn´t be surprised. "When will you offer silver" was the most frequently asked question by our customers. So I really should have anticipated its popularity.
DGC: It seems to me, that there is NO business in the world that can compete with the services and products GoldMoney has to offer. Who do you consider is your competition in the digital gold market?
Turk: We consider everyone who sells physical gold and silver to be a competitor. There are a couple of other players out there, but we are the leaders both in terms of size and governance procedures. We are also the oldest, having launched in 2001.
DGC: I see on the web site you now offer detailed information on customer holdings as often as each quarter. Is that your usual well know accounting firm in performing an audit each quarter or something new?
Turk: We have made a couple of enhancements. First, the SAS-70 audit is now being completed every six months on a rolling 12-month basis. Second, we now also use a specialist metal firm to complete bar audits four times a year. We have scheduled their work so that there are now auditors in the vault every other month. We do everything we can to provide our customers with assurances of integrity that their precious metal is safe and secure.
DGC: I would like to participate and help in the creation of a very detailed guide & manual for merchants on how to set up and use digital gold in everyday business. I believe the first step in this direction is to outline in legal and tax terms the day-to-day procedures for a business to accept digital gold as money. (such things as accounting for transactions, profit or loss on gold price moves, currency conversion etc.) I also believe that with the GoldMoney iphone app and the function which it offers consumers there is nothing standing in the way of the "everyday use" of digital gold currency for shopping or paying bills. The next move appears to be clearly defining the conditions for ALL digital gold currency transactions, incomes and sales. Has GoldMoney made any progress in this direction which aid online companies or help brick and mortar local businesses understand, integrate and account for transactions in digital gold?
Turk: No, we have been focused on building the main part of our business, which is providing our customers with a convenient, economical and safe way to buy and sell precious metals.
DGC: On my recent trip to the Webmoney Transfer office in Moscow, I discovered they provide, free of charge, a thick booklet on the legal accounting methods for Webmoney Transfer´s online payments. I have a copy but it´s in Russian and specifically made for the Russian accounting system. Would you support such an effort researching tax and accounting items that would advance the use of GoldMoney transactions for local businesses in the United States or the UK?
Turk: A booklet like this would have to be prepared by an accounting firm or by specialized consultants familiar with the rules and regulations as well as the nuances. There is a hurdle here that needs overcoming, based on our own experience. Being goldgram based and generating goldgram income from our services, we wanted to keep the accounting records of GoldMoney denominated in goldgrams. Our auditing firm, however, objected because the accounting rules they were operating under required financial accounts to be stated in terms of a national currency. So we have to keep our own books and records in terms of British pounds, and just report them in goldgrams for reference purposes for own our internal use and that of our shareholders. The bottom line is that rules and regulations usually lag the adoption of new technologies, and this principle is apparent with regard to DGC.
DGC: This would mean identifying and outlining standard procedures on accounting and taxes when dealing with a DGC. Or are you of the opinion that your company maintains the GoldMoney system and a local company´s daily business transactions are not within your responsibility? In other words, will integration into daily life require an outside third party effort or will GoldMoney participate and perhaps lead the way? (I believe we are ready to go)
Turk: Our primary responsibility is to follow all the laws and regulations of the country where we operate, Jersey, Channel Islands. We do this rigorously, and are regulated there by the Financial Services Commission. We do not have the knowledge or resources to follow the rules and regulations in countries where our customers are located. We put in our User Agreement that responsibility with our customers themselves. It is the only practical alternative for a global business like ours where we have customers scattered throughout the globe. So I believe the practical solution is for integration into daily life to come from outside GoldMoney, but we will continue to provide the tools to achieve this objective, like the iPhone application we recently introduced.
DGC: More than 5 years ago (Oct. 2004), Representative Henry W. McElroy filed a revised version of the original Gold Money Bill for the 2004/2005 session of the New Hampshire General Court (NH´s version of the House and Senate). Did you help any with the creation of that document?
Turk: No, it was written by Edwin Vieira, who is the US´s leading constitutional scholar on money in general and the dollar in particular.
DGC: What happened to that New Hampshire bill, and do you know where this important issue stands today?
Turk: I believe that the bill is still stuck in committee. I and several others testified before that committee, but we were obviously unsuccessful in that effort. Nevertheless, the bill received widespread attention and has spawned similar efforts in other states. And perhaps New Hampshire will eventually move forward with this important legislation to enable its residents to transact with the state in Constitutional money.
DGC: Yes, there are now several of these Sound Money Bills in all stages of creation and some are being voted on soon. Is this a good thing for the American people and do any have a chance of becoming State Law?
Turk: I don´t know if they have a chance of becoming law, but they are definitely a good thing. Today´s monetary and financial problems exist because we have abandoned the wisdom of the framers of the Constitution by creating a monetary system that they intended for us to avoid, namely, a fiat currency backed by government promises instead of gold or silver. One of the reasons they aimed to create "a more perfect Union" was to establish a single currency for the new country on a sound monetary framework, which they did in Article I, Sections 8 and 10. They wanted to avoid a repetition of the problems they experienced with the continental, the country´s first currency, which collapsed. But since 1971 when Nixon broke the formal link between the dollar and gold, the dollar is no different from the continental or the dozens of other fiat currencies that have collapsed. So if we continue down this same road – instead of making a u-turn and returning to a money system in conformity with the requirements of the Constitution – it seems clear that the dollar will collapse too, and that is what the rising price of gold is telling us.
DGC: Any comment regarding the conspiracy theories about "Tungsten Bars" that have been receiving a lot of press?
Turk: This controversy relates to bars made back in the 1990s, so it has no impact on GoldMoney. The metal we sell to our customers comes from bars made in recent years, most of which are purchased directly from refiners. Further, all the bars within GoldMoney are within the London Bullion Market Association "chain of integrity", meaning that the refiner whose name is stamped on the bar will stand behind the bar´s integrity and make good on it if it contains less gold than it is said to contain. Also, it is worth noting that these bars are made every day and melted down by jewelers and other fabricators, and there have been no instances of tungsten. Nevertheless, we have been investigating whether testing equipment exists to check the integrity of each bar in the vault without needing to remove it to another location, and so far we have not been successful. We are still following up though. We are not concerned about the integrity of the bars GoldMoney has in storage, but we want to put our customers´ mind to rest. If at some future date we are able to say that in additional to all the existing procedures we take to ensure the integrity of each bar that we are also testing each bar, it would help us achieve our main objective, which is to provide our customers with the highest possible assurances of integrity that their metal is safe.
DGC: Due to the tiny size of the silver market, it´s manipulation by large banking houses really holding the price of silver at an unusually low price?
Turk: Yes, I believe so, and evidence like the large short positions concentrated in one or two banks basically confirms it. These shorts are trapped, and there will be a massive short covering when the scheme finally falls apart. That date cannot be predicted, but it is reason why silver – like gold – should always be owned in physical form, not as paper. Own a tangible asset, not a financial asset.
DGC: Is the silver market a different kind of animal today than it was in the 1980´s?
Turk: Yes, because the short position today is concentrated in one or two big bullion banks, which I believe, are unable to deliver metal under their contracts because they are short. Back in the late 1970s and early 1980s, the short position was dispersed among a variety of bullion houses, which were largely backed by physical metal. As a consequence, the potential upside price target for silver today is much greater than it was back then. In other words, as bullish as I am about gold, I am even more bullish on silver, but because of the volatility, it is not for everyone.
About James Turk
James Turk is founder and chairman of GoldMoney, which provides a convenient and economical way to buy and sell gold, silver and platinum online using the digital gold currency for which he was awarded four US patents. He has specialized in international banking, finance and investments since graduating in 1969 from George Washington University with a B.A. degree in International Economics. He began his business career with The Chase Manhattan Bank (now J.P. Morgan Chase), which included assignments in Thailand, the Philippines and Hong Kong. In 1980 he joined the private investment and trading company of a prominent precious metals trader. He moved to the United Arab Emirates in December 1983 to be appointed Manager of the Commodity Department of the Abu Dhabi Investment Authority, a position he held until resigning in 1987 to begin FGMR. Free Market Gold Report (http://www.fgmr.com//) a free, web-based commentary aimed at educating readers to better understand gold, money and currency through James Turk's commentaries and insights.