Humans have been using metals as money for almost three thousand years. Until fairly recently, historically speaking, gold, silver and other metals were the basis for money all over the world.
Over the last couple of centuries, money lost its exclusive form of gold and silver coinage. Base metal coins and paper money, whose values were linked to gold at a fixed rate, gradually took over.
Linking printed paper notes and base metal coins to gold satisfied the requirement of money supply stability, given that the stock of gold is relatively constant, and only rises depending on how much new gold is mined from the earth.
Historically, the above-ground global gold stock has generally risen at the same rate as world population growth and global GDP (gross domestic product) expansion.
Renegade Inc. quotes James Turk, co-founder of Goldmoney, a global full reserved gold-based financial services company, who said:
“The above-ground stock [of gold] grows about one and three quarters per cent per annum, which is approximately equal to world population growth and new wealth creation. Money supply stability is thus guaranteed, in theory at least.”
There’s a new business model among the ranks of the fully authorised peer-to-peer lenders. Lend & Borrow Trust Company (LBT) is a platform which allows users to borrow against their precious metals.
Lenders earn interest by investing in loans that are secured against “investment grade” gold and silver bars. LBT takes effective control of the pledged gold and silver on behalf of lenders, and will sell it off if a borrower defaults on a repayment.
The pledged precious metals are stored in specialised bullion vaults in England and Hong Kong, operated by cash-handling company Loomis. Pledged bars must meet the standards of the London Bullion Marketing Association.
The maximum loan-to-value ratio on the platform is 65 per cent. LBT continuously monitors the LTV and will make a margin call if it rises to 75 per cent, meaning than the borrower will be required to pledge more collateral and/or partially repay the loan to bring the LTV back into line.
LBT’s founder, James Turk, previously founded and floated an online gold trading platform called Goldmoney. Now listed on the Toronto Stock Exchange, Goldmoney has a market cap of CAD$225m. Goldmoney is a shareholder in LBT, and Turk tells us that the platform will complement the services that Goldmoney already offers to its c. 1.5 million customers.
LBT has been operating as a business-to-business lending platform since December 2016, when it completed its first loan.
Turk, who is chairman of LBT, said that the authorisation process has taken 21 months.
“Lenders benefit, but so do borrowers because they can monetise their precious metals,” he said. “With LBT, borrowers and lenders interact without disclosing their names through online auctions that enable both parties to ‘lend & borrow’ at a mutually agreeable interest rate.”
These auctions may be initiated by both borrowers and lenders. Either borrowers list borrowing proposals, or lenders enter the conditions under which they would be willing to lend, with borrowers then bidding for the money.
The platform supports lending in five different currencies: GBP, EUR, USD, CAD and CHF. Its first loan was a £2m loan in GBP. Its second was a $5.25m deal in CAD.
Investors must invest a minimum of £5k to use the platform. The minimum loan size for business borrowers is £25,001, and £60,261 for individuals.
Peer-to-peer lending platforms in the UK must be fully authorised in order to offer an Innovative Finance ISA product to investors. There are now a decent number of fully authorised firms in the market, including (as of last week) the world’s original peer-to-peer lending platform Zopa.
LBT has said that the launch of its own IFISA is in the pipeline.
James Turk is widely respected as one of the true legends of the gold market, with over 40 years in the business. In conversation with Grant Williams, James looks back on his career, which is entwined with the modern history of gold, examining the potential for the next break to the upside and what comes next when empires of money end.
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