The issuer of the UK’s coinage, and the world's leading export mint, The Royal Mint, has partnered with American futures company, and one of the largest options and futures exchanges, CME Group. The two companies are building and launching Royal Mint Gold (RMG), a blockchain-based digital asset backed by gold.
Set to launch in 2017, “RMG will change the way traders and investors trade, execute and settle gold,” The Royal Mint announced on Tuesday. The mint is now inviting other market players to participate in this project by building connecting platforms to trade their assets.
RMG will be using a blockchain to keep track of the bullion while reducing trading fees, while the Mint plans to keep their storage fees at zero. While few details have been released about which blockchain technology that the RMG will use, the CME Group developed and operated product will allow trading between customers 24 hours a day and 365 days a year.
“Distributed ledger technology is a game changer and supplying gold on a blockchain has been on our minds for some time, but only after partnering with CME Group did we feel we had the right fit and proposition.”
- David Janczewski, The Royal Mint Director of New Business
Owned by the UK's HM Treasury, The Royal Mint is headquartered in Llantrisant, South Wales. The 1,100-year-old company employs more than 900 people and can produce 90 million coins, or almost five billion coins a year. Its primary responsibility is to make and distribute the United Kingdom's coins, while supplying blanks and official medals. The company also makes coins and medals for approximately 60 other countries outside of the UK.
Despite an increasing number of alternative payment methods and reports of declining cash usage, The Royal Mint’s 2015-16 annual report states, “we have not experienced any drop off in demand in the UK.” Domestic demand remained “extremely strong,” and the company earned a record £360.6 million last year. While revenue increased by 39%, operating profits rose 19% to £13.1 million.
Circulating coinage accounts for about 34 percent of the Mint’s total revenue. Commemorative coins make up another 14 percent. Meanwhile, the largest contributor is the Bullion business, at about 51 percent. The Mint already claims to have around 20,000 customers in their marketplace for gold coins, which has been online for two years.
In June, Royal Mint gold bullion became eligible for holding in Small Investment Personal Pension (SIPP) and Small Self-Administered (SSAS) Schemes, an advantage the company has over some of its private competitors. Eligible products include 1kg Royal Mint bars and Signature Gold, a spot service that allows customers to purchase and own a fractional amount of a 400 oz gold bar stored in their vault.
“Developing a trading platform with CME Group will satisfy customer demands for faster, cost effective and secure ways to buy, hold and sell gold and complement our existing products. This landmark partnership allows us to combine the world’s leading mint, the best futures trading platform globally and best in class technology.”
- Vin Wijeratne, The Royal Mint CFO
“The Royal Mint has a unique history and a trusted reputation earned over many centuries trading in gold,” said the Mint’s CFO, Vin Wijeratne. Surging bullion revenue in recent years led the Mint to launch Signature Gold last year. RMG provides a similar investment proposition, fractional ownership of a gold bullion bar, while the physical asset resides in the mint’s vault.
The main difference between the Signature Line and RMG is simply the issuance of the digital asset on their blockchain. The mint expects to launch RMG with “up to $1 billion” in gold backing. As they grow in popularity, the mint plans for further RMG to be issued as the market demands.
The Mint's adoption of blockchain technology followed a 88-page report earlier this year, from the Government Chief Scientific Adviser Sir Mark Walport. The report urged many departments of the government to start using the technology including for monetary uses.
“We were looking for a solution that was efficient in handling trading,’ explained David Janczewski, director of new business at the Royal Mint. “We didn’t set out with blockchain in mind but we wanted to address the problem that it costs money to vault gold.”
According to CEO Adam Lawrence, the company is also implementing a new IT system to replace more than ten legacy systems with one businesswide system, “to help facilitate the modernisation and growth of The Royal Mint.”
“This new service will provide an easier, cost-effective and cryptographically secure alternative to buying, holding and trading spot gold.”
- The Royal Mint
The CME Group operates a world-leading derivatives marketplace, although the Mint's partner also has a lot of experience in the blockchain space. The firm was a founding member of the Post Trade Distributed Ledger Working Group, a technology venture led by the London Stock Exchange which included several of Europe’s largest banks and clearinghouses.
The company and its investment arm, CME Ventures, has also invested in several startups in the blockchain space, including Ripple, the Digital Currency Group, and Digital Asset Holdings. CME Group also provides classes to the public for “digital currency and/or contemplating its role in the derivatives market.”
“As we continue to expand our global footprint and develop new products, this platform will help set standards for digital assets in financial markets,” said Julie Winkler, CME Group Senior Managing Director. “Developing a digital gold trading platform will help ensure that CME Group’s current product offerings meet the evolving needs of the global marketplace.”