The Royal Mint, an organization that has been minting coins for more than 1,000 years, is getting ready to release a new gold-based digital currency called Royal Mint Gold (RMG). The currency, which will be backed by $1 billion worth of the precious metal, is designed to give investors a safe, cost-effective method for buying, holding, and selling gold.
A “Bitcoin for Gold”
Like bitcoin, transactions involving this currency will be recorded on a blockchain, a distributed ledger system that will keep track of all trades involving RMG. The Royal Mint has been working with exchange operator CME Group to test the blockchain-based platform that will record these transactions. To be clear, RMG is not bitcoin, nor is it gold, but it combines features of the two into a new digital currency.
RMG could provide investors with a number of benefits. Here are a few.
Potential for Returns
Since the Royal Mint does not plan to charge buyers’ fees for storage and management, you could potentially enjoy higher returns by purchasing RMG instead of other gold-based securities such as exchange-traded funds. Investors have responded well to this plan to eliminate fees associated with both management and storage.
The Royal Mint has also taken steps to manage the risk that the digital token could lose value by limiting the issue of RMG. The financial institution plans to issue a set amount of these tokens during its initial offering and then follow specific guidelines regarding the issuance and redemption of tokens. Like gold, there will be a fixed supply, which means it cannot be manipulated by governments and central banks.
The Royal Mint’s gold-based token will provide investors with a highly secure method of owning the precious metal. Every unit of this digital token will represent 1 gram of gold bullion held within the Royal Mint’s vault. The Royal Mint will reconcile each digital token in existence on a daily basis.
Independent auditors will add another layer of security by examining and certifying the contents of the Royal Mint’s vault at least once every six months. Therefore, the token is truly backed by gold: it’s like holding gold, without the hassle of holding gold.
A Novel Approach
By providing investors with direct ownership of gold bullion, RMG will eliminate counterparty risk, which is the risk that one party in a contractual agreement will fail to hold up its end of the deal. Sandra Ro, head of digitization at CME Group, elaborated on the setup, saying:
“When you purchase RMGs you will effectively have real gold that is allocated from a direct ownership standpoint that is completely reserved.”
Through this use of blockchain technology, the Royal Mint and CME Group could revolutionize how investors buy and sell gold, a process that has changed little over the course of hundreds of years.
Commenting on this, Royal Mint CFO Vin Wijeratne notes:
“Distributed ledger technology is a game changer and supplying gold on a blockchain has been something The Royal Mint has wanted to develop for some time.”
RMG could potentially provide you with stronger returns than competing gold-based securities. In addition, the Royal Mint’s approach will eliminate counterparty risk, a major concern for investors involved in contractual agreements. Finally, the new method for trading gold that supports RMG transactions could potentially revolutionize the market for the precious metal. All of these factors make RMG an investment you might want to keep on your radar.
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