At over 1,000-years-old, The Royal Mint – the only institution licensed to provide coins in the UK – isn’t the type of business you might expect to be launching a blockchain.
However, in the face of new “technological and competitive” challenges, The Royal Mint is doing just that, announcing today that results of an investigation into how it could digitize its processes for the benefit for partners and customers.
As part of this larger drive, The Royal Mint has teamed with derivatives marketplace provider CME Group to build and launch a digital gold offering, one that could find it offering its users the ability to execute, settle and trade gold using a blockchain-based system.
David Janczewski, director of new business at The Royal Mint, explained that the product launch will see the company vaulting 400-oz gold bars, assigning ownership of these assets and allowing users to trade them peer to peer on a blockchain run by CME Group as a way to cut costs.
Janczewski told CoinDesk:
“There are costs associated with vaulting and storing gold and physical assets. It’s for this reason gold is often referred to as a negative return investment. We intend to address the issue and offer a better value way to invest in physical gold.”
CME digitization lead Sandra Ro added that the announcement represents the fruition of a collaboration between the two firms that has lasted for the larger part of a year.
The Royal Mint indicated it could end up issuing as much as $1bn in what it is calling Royal Mint Gold (RMG) as part of the offering, though it will first seek market feedback in assessing demand.
As for how The Royal Mint blockchain will be designed, CME Group was less clear, stating only that details about the platform, as well as the industry partners that are supporting the effort, will be forthcoming.
Still, Janczewski was adamant in stressing that The Royal Mint has “serious intentions” of bringing the technology to market, adding that it’s “not a proof-of-concept”.
CME Group further hinted that the project, like its existing products, will be accessible online 24 hours a day, 365 days a year, while also enabling users to see the blockchain history of RMG digital assets.
“This is a departure from traditional asset trading, but there’s a lot of changes that would make this interesting to current and new investors,” Ro told CoinDesk.
The product would complement existing offerings, such as its ‘Sovereign’ and ‘Britannia’ gold bullion coins, as well as its Royal Mint Refinery Bars, weighted from 1 to 1,000 grams.
Cost cutting
As for how the product will reduce fees, Vin Wijeratne, CFO of The Royal Mint, said that the product will remove traditional frictions that have occurred every time the exchange of its physical gold assets is recorded in a traditional ledger.
“Now, blockchain technology provides an efficient way, not a huge difference of registering the ownership, but in maintaining an accurate register of who owns what piece of gold, which is potentially very labor attentive,” Wijeratne said.
Ro noted that she believes the project would bring more accountability and transparency to over-the-counter trading in the physical gold market, thereby reducing costs for investors.
“There’s a price discovery element happening on the trading platform as well as the transparency of the ownership records,” she said.
The efficiencies, those involved said, will enable The Royal Mint to offer ownership of the underlying gold, “with the option for conversion to physical gold” with zero storage cost.
For investors
In interview, those involved with the project also hinted that it will provide a continuation of history for an organization that is so storied it has its own museum.
Wijeratne, for example noted that The Royal Mint has “centuries” of expertise in trading gold, and that the digital gold product envisions how the organization intends to ensure its services continue well into the age of blockchain.
The Royal Mint said it now intends to engage with groups such as retail broker-dealer community and investment advisors on how it might ensure the service’s quality at launch.
Ro further sought to differentiate between this effort and those launched by other gold industry players to harness blockchain efficiencies in post-trade, framing it as unique among what has so far been tried by traditional financial institutions.
“This is a digital asset, a digitized gold product, being put out to the market for traders,” she emphasized:
“We’re talking about an investment product.”
UK gold coins image via Shutterstock