The technology behind cryptocurrencies will completely revolutionize transactions and could turn gold into a world currency once again, according to Old Mutual Global Investors' (OMGI) precious metals manager Ned Naylor-Leyland.
Speaking at OMGI's global markets forum in Boston last week, Naylor-Leyland signaled the resurgence of a gold-based monetary system as the Middle East and Asia move away from US dollar dominance and increasingly swap oil for the precious metal.
These exchanges, he said, has seen the Shanghai Gold Exchange become the largest physical bullion market in the world.
Furthermore, in the west European central banks are increasingly buying gold. For example, Germany currently has 67.6% of its total reserves in gold.
The manager of the Old Mutual Gold and Silver fund believes the system is reverting to the historic norm which was abandoned when US President Richard Nixon announced in 1971 the end of international convertibility of the US dollar to gold, effectively severing the final ties with the 'gold standard'.
What will further exacerbate this movement will be blockchain, the digital, decentralized, public record technology behind virtual currency Bitcoin, which allows money and services to move across borders with no fees.
‘The system we’ve been using for payments is basically gone,’ said Naylor-Leyland.
‘Money must be store value, units of accounts and medium of exchange…crypto and blockchain resolve the problems that gold has. The only problem with gold and using it as money is the auditability, divisibility and ease of transaction with it.'
He adds: ‘If blockchain solves that, which it does, it makes gold relevant again as a potential monetary unit. Blockchain is smoothing the way for the re-emergence of gold in the financial system.’
These trends will lead to a ‘huge transformation of the price of gold,’ he added.
‘What you’re going to see is a revolution of what money is and what people think it is.’
Big banks and financial players have been skeptical over Bitcoin, especially due to its early association with online crime and money laundering. Earlier this month, JP Morgan Chase CEO Jamie Dimon labeled the popular cyptocurrency a ‘fraud’ adding he would fire any trader who traded it.
However, a number of banks, including JP Morgan, are reportedly investing millions of dollars in blockchain.
‘It’s a total disaster for banks. It’s about speed, reducing cost and complete transparency. Banks will make it partially transparent. They want to control the tech but they won’t be able to because the genie is out of the bottle.’