It’s high time to transfer wealth with help of gold and bitcoin.
In the attached article “Gold is as a transfer wealth”* published in 13 of October 2017 at “The Gold Chervonets” the role of gold examined as a legitimate tool in the migration of capital from the obsolete floating exchange rate system of IMF (paper money) into national crypto currencies of the Central banks in the period of 2018–2020 years.
If you follow the logic and actions of the monetary authorities and not to act, then middle class and businessmen are at risk of losing up to a third of their savings and investments.
If you invest in physical assets, like gold, then you should not worry about the fate of their banking, insurance and brokerage accounts. Because no one, including the best minds of humanity, I don’t know what the outcome of this “experiment” **.
The same is true for bitcoin, ethereum and its competitors. Alas, they are much more preferable and modern tools than gold now.
Gold is as a transfer of wealth.
For centuries, gold was given a central role in providing domestic monetary circulation and international payments. This period is associated with an active development of the barter economy, where silver competed with gold on the domestic market, but because of small capitalization inferior to it in foreign trade.
Over time, paper money ousted gold coins from cash circulation, leaving behind monetary gold (ingots 995–9999 tests) the right to be a part of gold and exchange currency reserves.
Going to the second layer in monetary circulation, gold retained a transfer function. As an extreme measure, it was used and is still used in forced change of jurisdictions, monetary formations and owners of capital.
Periods of peaceful development of countries and societies were accompanied by socio-economic crises and wars. When the severe times came, domestic capital was converted into gold and ensured its export to stable harbors under the protection of a reliable sovereign. In the first half of the 20th century, gold changed its jurisdiction several times, until was protected by the US, which was later secured by the Bretton Woods the 1944 Agreement. However, it has not stood the test of time. In the 70s the transition from the fixed-exchange rate system to the floating rate system (Hard currencies), gold as always helped to protect capital from high inflation.
Now we continue to live in the IMF floating rate system. It is based on paper money. This is an external form. But in fact it is American credit money (USD). For 50 years of its existence, the functioning monetary system has ensured a high level of development of the countries of developed economies (OECD). The flip side of this prosperity has become over lending to all participants of the floating rate monetary system: governments, business and the public. Excessive debt load Western countries led to the financial crisis of 2008–2009. To overcome recession of credit and financial balances Western countries applied the budget lending to economies (Bail-Out). These measures caused a budget crisis at weak economies of the EU, because of which the EU debt crisis of 2010–11 broke out. To overcome crises, creditors and debtors have decided to collect taxes from business assets and population and reduce the national debt to a manageable level. This process would allow participants of negotiations to restart the credit cycle and ensure a stable economic development of the West.
According to the estimates of the BIS in 2009, the debt burden of Western countries was 200 to 400% of GDP. At the same time, managed debt should not exceed 180% of GDP (1). Based on these calculations, in September 2011, The Boston Consulting Group determined that in absolute terms, the excessive debt burden amounted to 15.16 trillion or from 34% to 26% of the assets of the middle class of the EU, UK and the US. At the same time, unmanageable debt must be written off in accordance with the new rules for the reorganization of financial and financial balances (Bail-In) at the expenses of the middle class assets, i.e. shareholders and creditors of the recovering organization (population, small and medium business).
The Bail-In principles were approved at the November FSB G20 session in Cannes “Key Attributes of Effective Resolution Regimes for Financial Institutions”. A large-scale legalization of Bail-In began after adoption of the UN Resolution of 09.09.2014 №68/304" Towards the establishment of a multilateral legal framework for sovereign debt restructuring processes “ (2). In most cases Bail-In legalization passed in the period until 2017. The process affected G20 member counties, including the Russian Federation, and also most of the world states, which adopted the above-mentioned UN resolution.
Bail-In laws were written on the experience of Greece default (sovereign Bail-In for 50 billion Euros, March 2012) and the recovery practices of Cypriot banks (Bail-In for 10 billion Euros, March 2014).
There is no need to exclude from the Bail-In measure a useful experience of the reorganization of MF Global (October 2011) with transfer of positions of 50 thousand clients — professional participants of the exchange market by 1.2 billion US dollars in favor of JP Morgan (the Bail-In exchange).
Modern foreign and Russian practice Bail-In in 2017 differs by the composition of assets and the depth of debt write-off. In Europe, for example, practice tough options, as in the case of “Banco Popular” (3), where depositors suffered. Russia authorities do not take risks and go to the “soft” Bail-In, as is the case with banks “Peresvet” (4), “Otkritie” (5) and “Binbank” (6). They were examples as shareholders and holders subordinated bonds, loans and deposits lost from tens to hundreds of billions rubles without consequences for depositors.
However, one-off cases of recovery of credit and financial institutions have always occurred before the legalization of Bail-In. This should not worry the many people. But now in 2017 we face a reform of the financial and credit system of a planetary scale.
This is a transition from paper money to a crypto currency based on Distributed Ledger Technology (DLT — aka Block Chain).
Between 2008 and 2017, the authorities tried not to advertise its official interest in the crypto currency. Instead, they prepared a base for the massive introduction of national crypto-currencies:
- “allowed” free distribution of private pilot projects on the crypto currency (Bitcoin),
- involved marginal, low-income and other specific groups of the population in the financial turnover under the patronage of the World Bank (Islamic banking, microfinance organizations, bank transport cards),
- achieved a reduction in cash circulation through the UN “Better than Cash Alliance” program 2012–2017 (USAID, Bill & Melinda Gates Foundation, Citi, Ford Foundation, Omidyar
Network, Visa Inc. and MasterCard).
The last closed Blockchain meeting was chaired by the IMF, World Bank and the US Federal Reserve in New York with the participation of representatives of 90 Central Banks in June 2016 (7). In February 2017, a working group was set up at BIS headquarters (Switzerland), which includes a representative of the Bank of Russia (8).
Starting from 2017, the process of legalization of the crypto currency, as a national currency took an affect in almost all countries of the world. The Central Bank of Sweden (Riksbank) came first with e-krona project (9) and followed with j-coin Japan project (10). In both cases, launch of national crypto currency is designated for 2019–2020 years. In particular, the Swedish model, like everything else, is built around the principles of the US Chicago Plan 2012 (11). It provides for a transition from a two-tier banking system to single-one. A single-tier banking system means that the central bank directly maintains bank accounts and provides banking services to end users
or allows third parties to provide banking services on client accounts in central bank. These rules also apply to the turnover of “cash” in the form electronic money (e-krona), hold on smartphones and bank cards.
It turns out that in the new world of national crypto-currency there is no place for the existing banking system and cash. In this case, the lifetime of the floating rate monetary system (IMF) depends on jurisdiction, but, in fact, is limited to the nearest years, maximum of five years.
In other words, it is a question of converting credit and financial assets from of the two-tier banking system to a single-tier central bank system, built on Block Chain, in 90 countries.
Here you need to update and give additional introductory information: on the volume of assets, the amount of taxes on assets of the middle class and the conversion rate of net assets into the crypto currency (after tax).
1) In accordance with the IIF schedule for the 1st quarter of 2017, financial assets amount to 217 trillion or 327% of world GDP (12).
2) We repeat again. According to BCG calculations it is said that BIS allows a level of debt
no more than 180% of GDP (1).
3) In accordance with the IMF document “Fintech and Financial Services: Initial Considerations” (June 2017), the conversion of assets will take place with a ratio of 1 to 1 (13).
Based on this, a logical considerations arises, which assets and how much will be Bail-In-ed and how much of the free of wealth tax assets will pass to the new Block Chain system (119 trillion USD, equivalent to 180% of GDP)? Obviously, something will have to give up.
How this happens in Russia is not known. Will this be a soft version of Bail-In or hard one (as in Cyprus), with the conversion of uninsured private deposits (outside the Deposit Insurance Agencies’ program) into illiquid stocks of troubled banks? What will be compensation for insured deposits in the case of a one-time mass suspension or closure of credit institutions?
There can be a lot of speculation, but the facts remain facts.
Holders of subordinated bonds of Otkritie Bank lost everything, the assets of 111.2 billion rubles, and interest income. In a similar situation are holders of uninsured deposits (over 1.4 million rubles) and unallocated bullion account. They carry risks up to 100% of the losses in case of a recall of banking license. The review list in Central Bank of Russia is great. According to the rating agency “Fitch” (14) in the near future the number of banks will be halved, i.е. from 600 existing today will be closed 300 credit organizations. At the same time, the assumption is made that Russia is as good as if there are with 50 banks only.
In accordance with the foregoing, the following conclusions can be drawn:
1) the paper money of most states will be universally withdrawn from circulation,
2) the uninsured deposits will be converted into illiquid shares of troubled credit organizations,
3) other subordinated assets and shares of troubled banks will be written off fully or converted into shares of the recovered organization,
4) the insured deposits will be converted from an asset into crypto currency of the central
bank in the ratio of 1 to 1,
5) other assets withdrawn from the operational turnover of the financial and credit national or global system will not be subject to bail-in practices and will remain in the same (physical) form.
Here it is possible to allocate stocks in storage at the register holders, assets in closed-end funds (CEF), precious metals and stones, paintings, cars and real estate. The first category is available, mainly, to professional investors. Last category falls under increasing taxation. Of precious metals, stones and works of art, only gold bullion coins have a deep market (250 billion rubles), high liquidity and an predictable pricing system.
It turns out that from the presented sample the most interesting asset is gold bullion coins. The demand for them, as well as on other assets with high capitalization will grow as the middle class and wealthy citizens become aware of the risks associated with the transition from paper money system into the crypto currency.
Proceeding from this, it is possible to make the following forecast.
Gold will become a legitimate tool transferring private capital from existing to a new monetary system built on Blockchain. Based on the balance of supply and demand in the country and abroad *, quotes of gold will increase in price in rubles and dollar terms. It will happen in a very short time, in the period of readjustment credit and financial balances of 217 trillion USD in 2018–2020.
The preferred form of possession of gold in Russia is physical in the form of gold bullion coins and / or shares of CEF (15).
* According to WGC data for June 30, 2017 gold in physical form, ever mined is estimated at 7.667 trillion USD, including, in ingots and coins, 1.533 trillion (16).
(2) UN https://static.bullionstar.com/blogs/koos-jansen/wp-content/uploads/2015/03/UN-resolution68304.-Towards-the-establishment-of-a-multilateral-legal-framework-for-sovereign-debt-restructuringprocesses.pdf
(7) 90 Central Banks https://www.coindesk.com/central-banks-blockchain-federal-reserve/
(8) BIS http://www.bis.org/cpmi/publ/d157.pdf (Annex 2)
(11) the Chicago Plan http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf (Annex 3)
(12) 217 trillion usd http://www.zerohedge.com/news/2017-09-17/bis-finds-global-debt-may-beunderreported-14-trillion (Annex 4)
(14) Fitch https://www.fitchratings.com/site/pr/1030301
(15) CEF http://www.spbcmc.ru/ (not available now)
(16) WGC https://www.gold.org/research/gold-investor/gold-investor-september-2017 (Annex 6)