If you don't like using credit card on Internet, try gold
SAN JUAN, Puerto Rico The Internet may be breathing new life into a currency that, in recent years, has fallen out of use gold.
So instead of relying on credit cards the dominant online payment system people can opt for bullion-based cybermoney, which purveyors tout as a quick, cheap and private alternative.
The advent of e-commerce has allowed transactions to skip easily across national boundaries. But most transactions in cyberspace still involve national currencies, fraught with risk of fluctuating exchange rates and the cost of bank commissions.
In many ways, digital gold appears to offer a simple solution: a stable, cashless currency with cross-border purchasing power.
Digital currency holders can buy things online, send money to other users or simply exchange national currencies into cybergold.
But the ease of hiding ill-gotten gains in virtual gold worries financial crime fighters and regulators, who struggle to track shady offshore banks and money launderers. Although the U.S. Secret Service said it could not confirm whether money laundering was occurring with digital currencies, it called such currencies "wide open" to this type of crime.
"There is tremendous potential in using these products for money laundering," said U.S. Secret Service Agent Eddy Lugo, who works for the Treasury Department. Lugo went on to note that no digital currency business has established bank-like standards for reporting suspicious activity.
Digital currency entrepreneurs say they seek legitimate customers who wish to make large, low-fee online transactions.
"You can't build a solid business by catering to criminals," said Douglas Jackson, a retired physician who lives in Melbourne, Fla. and is the founder of E-gold, a digital currency firm based on the Caribbean island of Nevis.
Customers can set up a digital currency account by registering with an e-mail and password at one of the firm's Web sites.
They then go to a currency exchange Web site that converts payments via bank draft or wire transfer to a gram-equivalent in virtual gold.
That amount is credited to their account.
Digital gold owners then patronize sites equipped to receive it such as Bananagold.com, where digital gold holders can use an interface to shop at Amazon.com (1.7 ounces of gold will buy a $450 Palm Pilot). At other sites, the digital currency can be used to dabble in Asian stock markets or play casino games.
Although many currencies used to be freely convertible into gold, paper currencies based on floating exchange rates became the main means of international exchange after the U.S. dollar abandoned the gold standard in 1971.
Now, however, some such as Mervyn King, deputy governor of the Bank of England, think the Internet could provide the catalyst for an end to the state monopoly on issuing currency.
Besides E-gold, Standard Reserve, based in the British Virgin Islands, and GoldMoney, based in the Bahamas, offer digital gold. For these firms, the Caribbean is an ideal place to do business, largely because the islands tend to have secretive banking laws, no-tax or low-tax regimes, and allow firms whose only presence may be a sheaf of papers in a law office to register for business.
The companies back their digital currency with gold bars stashed in their vaults that are verified by chartered accountants.
However, the actual computers that are host to the accounts may be elsewhere. GoldMoney, for example, contracts South Africa's Dimension Data to run its Web site from the island of Jersey in the English Channel. E-gold's system is operated by a partner company in Florida.
As the business grows, so does scrutiny. On Nevis, Finance Secretary Laurie Lawrence said authorities who registered E-gold as an offshore company still are trying "to get a handle" on how digital currency operates and whether to regulate it. The government of St. Kitts and Nevis is drafting its first money-laundering regulations.
Both E-gold and GoldMoney said they are developing safeguards, including certificates to identify clients as legitimate depositors. They also note that because the currencies tracked by computer, all transactions are recorded and traceable to an Internet service provider.
Founders of the digital gold ventures believe their products will succeed.