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A British Company Really Pay Wages In Gold

Pay Wages In Gold

Does A British Company Really Pay Wages In Gold?

Recently there was news that a British company, Tally, pays its employees in gold. According to CEO Cameron Perry, quoted by Bloomberg :

People are increasingly faced with the devaluation of fiat money , at the heart of the debt-based monetary system. Gold has always been used as an anchor that provides stability in times of fluctuations in the money supply. That’s why we use gold, everyone knows it’s valuable.

 

Perry’s reasoning is absolutely correct . The UK’s official consumer price index rose 9.4% year-on-year in June, the biggest increase on record . The actual depreciation of the local currency is even higher. Thus, from June 2021 until the end of June 2022, the price of gold in sterling increased by 14.17%. In conclusion, it is normal for people to prefer a stable asset like gold over the pound or any other currency.

But are Perry’s underlings really getting paid in gold? The news on this topic is just a pretext to discuss in this article what is meant by allocated gold accounts and unallocated gold accounts and stablecoins. For better clarification, I mention that the capitalized term refers to the company name, while the lowercase word refers to the cryptocurrency. At the same time, the purpose of this text is not to provide investment advice, evaluate the company or comment on the value of this investment tool. The information is presented for informational purposes only, especially as most readers will not be able to purchase tally as this product is only available to UK residents.

What is a stable cryptocurrency and especially the tally?

A stablecoin is a cryptocurrency whose value is determined and backed by other assets – a fiat currency, a basket of currencies, gold or something else. For example, when Facebook announced years ago that it wanted to have its own stablecoin, Libra (later renamed Diem), it had to be backed by a basket of fiat currencies and US Treasuries. The idea is to thus avoid the high volatility specific to cryptocurrencies. Also, it’s one of the reasons why they can’t be used for payments. If you don’t know how much a financial instrument will be worth tomorrow, you are unlikely to accept it as a payment method.

In this case, the guarantee is at the rate of 1 number = 1 milligram of gold. According to the company’s terms and conditions , the yellow metal is stored in Switzerland. At the time of writing, one gram of pure gold is worth £46.29, meaning one unit of the cryptocurrency is worth around £0.04629. Technically, its price is estimated based on the wholesale value of a one-kilogram gold bar, according to the London Bullion Market Association’s “good delivery” standard.

When someone buys cryptocurrency, they pay for it in pounds or euros. The company does not accept other assets. Let’s imagine that a user wants to buy a number of 1,000 tallies. He will deposit £46.29 into his account. The company will credit its account with 1,000 units of cryptocurrency and order the purchase of one gram of pure gold.

Allocated And Unallocated Gold Account: Which One?

Let’s look at the most interesting aspect, that of the property. There are two forms of digital gold ownership: allocated accounts and unallocated accounts .

 

As the name suggests, in the case of the first, the investor is the owner of a certain gold bullion or coin , kept in a safe . Storage of physical gold is a service for which the customer pays. Gold can also be delivered, but can generally be sold to someone else without leaving the vault. Even if the company managing the vault goes bankrupt, the physical gold remains in the holder’s possession.

With unallocated deposits, the situation is much different. In this case, the investor assumes that he is buying gold, but enters into a business relationship with a financial lending company that is supposed to buy and store the gold on his behalf . In unallocated accounts, the investor may have various different restrictions, such as the right to resell the gold only to the institution from which they bought it. And if he has the opportunity to demand the delivery of a bullion or a coin, he also has to pay high fees.

In the event of the bankruptcy of an institution from which an unallocated gold account was purchased, the depositor will not receive an actual gold bar or coin. As a creditor, you will have to wait for the sale of goods. One of them is gold. Finally, our investor will receive the dollar equivalent (pounds, etc.) of the gold sold during the bankruptcy proceeding, after the secured creditors (if any) have been paid.

Why would anyone enter into such a transaction when they do not become the owner? Unallocated accounts allow for some flexibility, such as the ability to invest very little money. The smallest gold bar for investment is one gram. Unallocated accounts allow investing in a smaller amount because it is not a specific physical product. It also seems to solve the gold storage problem. Last but not least, since the investor does not become the owner of the product, commissions may be slightly lower than in allocated accounts.

Precious metal ownership and cryptocurrency tally

In the case of cryptocurrency, we are talking about a similar mode of operation to unallocated accounts, at least from the user’s point of view. The terms and conditions clearly state:

“When fiat money is sent to a Tally account, it is automatically converted to a number and each unit of account is an electronic record of ownership and title. per milligram value of physical gold… In the unlikely event of a transaction suspension, all gold delivered by record will be sold immediately and its value in fiat currency, minus a 1% fee for legal mechanism and transaction processing, will be transferred in the customer’s bank account.”

Users cannot convert their cryptocurrencies into gold that they can order or pick up from Switzerland. Even in bankruptcy, the company will sell the metal and pay the equivalent in fiat currency into the account of its customers. It is more accurate to say that Tally pays its employees in a gold-backed asset (if indeed it maintains reserves of one milligram for each unit of the cryptocurrency) rather than in the precious metal.

The idea of ​​paying a salary in gold is very good. Thus , our purchasing power would be preserved in the long term, instead of quickly evaporating . When talking about the precious metal, however, it is important to understand very well how the idea of ​​ownership of what we get works.

In this case, we have a gold-backed asset. At least in theory, this has the potential to make it much more stable than any fiat currency such as the euro, dollar, leu, leva, dinar, lira or almost any other cryptocurrency.

But gold collateral does not mean that users own the actual gold. Rather, they have a claim on sterling corresponding to the value of the metal backing the cryptocurrency. And this is very different from actually owning the physical asset in the form of gold bars or coins or which can be purchased from allocated gold accounts.

Paid In Gold

Can Russia Export Raw Materials And Be Paid In Gold?

It is possible that Russia will start accepting gold for the export of gas and other raw materials, including mineral fuels. The proposal is made by the chairman of the energy committee of the parliament and the chairman of the Russian Gas Company, Pavel Zavalny. It comes in response to the many sanctions imposed by most countries around the world.

The euro and the dollar have ceased to be a means of payment for us, although we provide real resources. This applies not only to gas, but also to other minerals that we export to Western countries. If they want to buy from us, let them pay in currency, and currency for us is gold, or other currencies that we accept for payments. In the case of unfriendly countries, this is the Russian ruble. In the case of friendly countries such as China or Turkey, this is the local national currency.

Recent geopolitical dynamics place gold in different roles. On the one hand, it is a lifeline for the population. On the other hand, it is apparently considered to be a form of money that a senior Russian official is willing to trade with the outside world. Third, it is worth discussing the dynamics behind the fall of the ruble. Fourth, let’s see if it is possible to start paying for gas in Russian rubles. Below we’ll look at each of these issues one by one to see how dire the Russian rulers’ demands are and how much they’re making, including gold.

Russians protect themselves with the help of gold against the depreciation of the ruble

After the package of sanctions on Russia, the Russian ruble depreciated by almost 47% against the dollar in just one month – between the beginning of February and the beginning of March. This led to the withdrawal of consumer deposits and a reorientation towards safer assets, specifically gold investments. The move is not surprising – gold is an anchor of security in a time of geopolitical and economic uncertainty and high inflation.

Data from Russia’s biggest bank, Sberbank, shows that Russia’s demand for gold quadrupled in the weeks leading up to mid-March. Even the number of offices where they could buy the yellow metal increased . We can expect that, despite the slight stabilization of the ruble in recent days, the population’s gold investments will continue to grow.

The Russian ruble and the reasons for its long-term depreciation

The devaluation of the Russian ruble did not start yesterday. At the beginning of the century, one dollar cost 25 rubles. At the time of writing, the price is 82 rubles, and at the peak of its decline in March 2022, it exceeded 140 rubles per dollar. This enduring trend is worth explaining.

Inflation is an increase in the money supply; rising prices is only one of its manifestations. It is seen in huge quantities globally, including in Europe, but Russia is ahead of it in money printing. Since 2000, its central bank’s balance sheet has grown from 50 billion to 55 trillion rubles – an increase of 1,099,900%. 

 For the same period, money supply M2 (including money in circulation, savings deposits, securities on stock markets and short-term deposits) was launched from just over 1 trillion rubles to 65.3 trillion rubles – an increase of 5575.3% or more than 60 times . At least some of these funds go directlyto the local military-industrial complex. In comparison, in the same period the money supply of M2 in the euro area grew by “only” 267% – from 4 to 14.7 trillion euros.

Thus, the main cause of the collapse of the Russian ruble is the printing of money by the Central Bank of Russia itself. The country is a textbook example of what not to do with a single currency.

The effects of local inflation are compounded by the effects of sanctions. Most of Russia’s foreign trade payments are in dollars or euros, but the disruption of a significant part of trade, combined with the risks of default and bankruptcy, has lowered confidence in the Russian ruble and, accordingly, its price. At home, the population, faced with a rapid collapse in purchasing power, also began to turn their backs on the currency as much as possible. As it turned out, more and more Russians are investing in a safe asset like gold.

Last but not least, the unprecedented freeze on the international assets of the Central Bank of Russia (it is the first central bank in a G20 country to be subject to such sanctions) means that it cannot sell its foreign reserves to maintain the exchange rate , the ruble, the same as before the imposition of measures. Thus, all factors leading to the collapse of the ruble continue to be observed. That means it can only continue to depreciate.

Gold Standard

Russia And The Introduction Of The Gold Standard

This is confirmed by the failure of movements to save the ruble in Russia. They forced companies to sell 80 percent of their export profits for rubles, blocked the withdrawal of more than 10,000 dollars or euros from individuals’ deposits and “banned” the payment of foreign currency debts. The latter was impossible in advance – if an institution tries to pay a debt with an asset other than the contracted one, it becomes, in effect, insolvent. That is why the state itself paid two tranches of maturing bonds totaling more than $4 billion. The same applies to Russian companies that continue to pay their debt in dollars.

For this reason, Russia has resorted in recent days to its next tool of geopolitical influence – the export of raw materials. Zavalny is not alone in pushing for alternative currencies in payments. Putin announced that gas exports to “enemy countries” (including almost everyone in Europe) will begin to be made against the ruble only. At least in words, by the end of March 2022, Gazprom and the Central Bank of Russia had to develop a mechanism to make this happen. Reluctant to use its currency, the federation has threatened to divert commodity exports such as gas to Asia.

First, over the past year and a half, Russia’s gas exports have surpassed those of its oil exports. Paradoxically, after the invasion of Ukraine, Europe increased its imports of Russian gas . Currently, the export of raw materials is the main currency for Russia.

Therefore, it is highly unlikely that she will try to interrupt him. We write “experience”, but in fact such an action is impossible. Gazprom’s contracts with buyers in Europe are in euros, and if the company tries to change the terms unilaterally, it will mean breach of contract. This will lead to lawsuits and significant financial damage to the company. If it stops delivering, it will be even worse for Gazprom and Russia, because to the huge losses from unsold exports will be added penalties that the private institution will have to pay, amounting to hundreds of millions of euros per day.

In conclusion, it is not impossible that in the future Russia will start receiving gold or a currency other than Euro from gas exports. But this cannot happen without the consent of the counterparties with whom it trades. Such an agreement with most European countries at this stage is unrealistic. They are trying to end dependence on Russian imports (representing 40% of total gas supplies) rather than “playing by the Kremlin’s rules”.

Despite this impossibility, discussions about paying for Russian exports in rubles may have borne fruit. The ruble has appreciated more than 41% against the dollar since the low level reached in early March, when the rate was 140 rubles to the dollar.

Since 2014, when Crimea was annexed, Russia’s central bank has accumulated more than 3,000 tons of gold reserves. This made it one of the largest owners of the precious metal. In 2020, it halted its gold buying policy (which the sovereign wealth fund did not) before resuming it earlier this year. After a short window in which he did not participate in the markets, he returned as a buyer at the end of March, but at a fixed rate of 5 thousand rubles (about 52 dollars) per gram of pure gold. This is significantly lower than the spot price of $62.18 at the time of writing.…

Presence of Gold

The Presence of Gold In The Modern Economy

Even though gold no longer backs the US dollar (or other world currencies for that matter), it still holds importance in today’s society. It is still important to the global economy. To validate this point, one need look no further than the balance sheets of central banks and other financial organizations such as the International Monetary Fund . These organizations are currently responsible for holding nearly one-fifth of the world’s above-ground gold supply. In addition, several central banks added to their current gold reserves, reflecting concerns about the global economy over the longer term.

Gold preserves wealth

The reasons for gold’s importance in the modern economy center around the fact that it has successfully preserved wealth over thousands of generations. However, the same cannot be said for paper currencies. To put things into perspective, consider the following example:

In the early 1970s, an ounce of gold was $35. Suppose at that moment you had the choice of either holding an ounce of gold or simply keeping the $35. They would both buy you the same things, like a new business suit or a fancy bike. However, if you had an ounce of gold today and converted it at today’s prices, it would still be enough to buy a new suit, but the same cannot be said for the $35. In short, you would have lost a substantial amount of your wealth if you decided to hold $35, as opposed to an ounce of gold, because the value of gold has risen while the value of a dollar has been eroded by inflation .

Gold as a hedge against the dollar

The idea that gold preserves wealth is even more important in an economic environment where investors are facing a falling US dollar and rising inflation. Historically, gold has served as a hedge against these two scenarios. As inflation rises, gold usually appreciates. When investors realize that money is losing value, they will begin to position their investments in a hard asset that has traditionally held its value. The 1970s represent a prime example of rising gold prices amid rising inflation.…