It’s not just currency that’s going digital – £1bn of the Royal Mint’s gold will soon be on the blockchain.
The 1,000-year-old government-owned institution is working with exchange giant CME Group create a new digital trading platform for investors to buy and sell gold using blockchain’s distributed ledger technology (DLT) to track ownership.
Why use blockchain? Having to keep records of ownership is timely and costly, so, putting it on the blockchain removes that hassle. It means the Royal Mint can remove the charge for holding gold; a competitive edge when vying for investors' cash. It will take a small transactional fee only from from buying and selling.
The Royal Mint is hoping to give investors another option for investing in gold other than products such as exchange traded gold funds.
These gold ETFs have experienced inflows worth $29bn in the first three quarters of the year, according to the World Gold Council, largely thanks to rising uncertainty with the surprise events of politics as well as negative interest rates, but returns haven't been great.
And while the two firms have been looking at such a project “for a number of years”, now is clearly not a bad time to be launching a product for gold investment. The Royal Mint has been around for centuries and weathered a lot of turbulence.
“Gold trading still isn’t easy and it’s costly,” Royal Mint’s director of business David Janczewski told City A.M.. “There’s annual management fees, and it’s a negative return investment now. Royal Mint Gold (RMG) will address the issue."
It’s thought to be the first digital platform to turn gold into a digital asset and one RMG will be the equivalent to one gram of gold.
The launch will come in mid-2017 and the institution is looking to partner with the investment community, from retail brokers to online asset managers, to offer an initial £1bn worth of RMG which will then be traded peer-to-peer on the blockchain.
"It will be a fully functioning product, “not just a proof-of-concept”," said Janczewski. “It will actually be out there”.
It follows the launch of a website for buying and selling bullion aimed at both small and large investors in 2014. It now counts 20,000 account holders.
Bullion is the fastest growing part of the Royal Mint’s business after being spun out separately to its circulating and commemorative coin businesses at the start of last year. Revenue soared 64 per cent to £185.6m in 2015/16, according to its latest results published at the end of July, as operating profit jumped 84 per cent to £2.8m.
It‘s the first foray into blockchain by the Royal Mint. “We want to be around for another 11,000 years. That doesn’t come about by standing still,” said Janczewski.
CME Group, the largest futures exchange in the world which will build and operate the platform, is one of many finance firms to jump into developing blockchain technology.
It’s a member of the industry body Post Trade Distributed Ledger Group (PTDL) which also includes the London Stock Exchange, Euroclear and HSBC, as well as the Hyperledger project, a linux-based open source consortium.
The digital ledger used in the project with Royal Mint will be a permissioned rather than public one, ME Group digitisation lead Sandra Ro confirmed. That means, while there is transparency using blockchain, it will only be to selected parties. However, the firms would not reveal which particular blockchain platform will be used to build the project.