A new gold-linked product being distributed through Indonesia’s postal service raises interesting ideas about financial inclusion, parallel monetary systems, blockchain and Islamic finance.
On April 16, a company called Kinesis soft-launched a physical gold-based digital Shariah-compliant product called PosGo Syariah. It is government-backed and run through the 24,000-location network of PT Pos, the state postal service.
Customers use an app to access PosGold, which gives them digital ownership of gold underpinned by physical metal in a Jakarta vault, together with the opportunity to transfer money between gold and fiat balances.
The platform also offers a payment gateway, E-Wallet service and a gold-based community savings programme for Hajj and Umrah pilgrimage trips.
Kinesis’s founder is Thomas Coughlin, a veteran of the investment, funds management and bullion industries, and who has long been a believer in the potential to transform global monetary systems through the digital integration of physical gold and silver into the economy.
In this project, Kinesis is working with electronic institutional precious metals exchange Allocated Bullion Exchange – Coughlin is chief executive of both – as well as PT Bullion Ecosystem International, an Indonesian e-commerce and financial technology company.
Inclusion
The Indonesian government has backed this project because of the potential for financial inclusion and the promotion of Islamic finance. Gold is Shariah-compliant, since it is a physical commodity rather than an interest-bearing security or account. Consequently, any consumer who uses the platform is able to manage their wealth, trade, save and transact without debt or interest serving any part of the process.
Kinesis also uses its technology as a method of remittance for Indonesian migrant workers in the Middle East, Malaysia and elsewhere.
Gold is the universal currency
Thomas Coughlin, Kinesis
The World Bank says more than nine million Indonesians work abroad, equivalent to almost 7% of the national labour force.
With a roughly 1% fee, Kinesis compares well with services such as from Western Union that migrant workers typically use today.
The project follows JPMorgan’s decision to use the Indonesian migrant worker population, in this case based in Taiwan, as a proving ground for a cross-border blockchain payments tool.
Being mobile phone-enabled – with the physical service network of the post office – ought to make the product usable by Indonesia’s large unbanked communities that are also the target market of financial initiatives from Grab and Go-Jek, among others.
PT Pos’s 70,000-strong workforce of employees and agents will be the first to use the product. Nationwide rollout will follow.
Payment rail
Coughlin says the journey began 11 years ago with the foundation of his group around a bullion exchange, initially in Australia and then globally. As the group set about plugging institutional market participants into the exchange, such as trading houses, dealers, banks and central banks, it came across Indonesia’s ambition to use its post office system to bring efficiency and inclusion to its largely cash economy.
Indonesia’s Financial Services Authority, OJK, says that financial inclusion in Indonesia stands at 76.1%, but that’s a recent increase: as recently as 2017 the figure was below 50%. Kinesis says that between 70% and 80% of the population is at least underbanked, if not unbanked.
“So, we started working in Indonesia with the post office, the banks and the exchange to introduce a gold exchange within the country,” says Coughlin.
Then the group opened a new business, the Kinesis monetary system, using blockchain technology.
“We went from being a provider of liquidity for gold within the country, to building out the entire payment rail system for the post office,” says Coughlin.
Constant
The need for financial inclusion in Indonesia is well-known, but gold is rarely cited as a method of addressing it.
Why gold?
“Gold is the universal currency,” Coughlin says. “Asia has a great affinity towards gold as a store of value and it has held its value throughout the test of time. In times of currency crisis, people flock towards gold.”
This is particularly important given the cross-border hopes for this system that come with Indonesia’s migrant labour force.
We married them together, the new-age technology and the tried and tested store of value
Thomas Coughlin, Kinesis
After speaking to Indonesian officials, Coughlin says: “They saw gold as being the constant, valued as a currency throughout different nations.”
Of course, the price of gold moves against the rupiah; for most of the last 20 years it has done so in a relentlessly upward fashion. More recently, though, it has declined.
Coughlin says getting the regulators on board was “a long and slow process; years in the making, but we got there in the end.”
Part of the delay was the need for new regulations on gold trading that would allow the system to be introduced.
Marriage
To Coughlin, the development of blockchain is a pivotal moment for precious metals.
He has always been a believer in the role of gold and silver in monetary systems, but blockchain as a decentralized payment technology brings efficiency to using them as a medium of exchange.
“We married them together, the new-age technology and the tried and tested store of value,” he says. “It somewhat puts the power into the hands of the people. There’s a sense of freedom and liberation around holding gold: you’re not beholden to a central bank’s quantitative easing, flooding money supply and devaluing the currency. It protects against all of that.”
Coughlin also says the Shariah-compliant element was vital in Indonesia.
“To get the blessing of the government and of the people, it needed to be Shariah-compliant. We definitely wouldn’t have got the support we did otherwise.”
The product is supported by the Shariah Supervisory Board of the National Shariah Council.
That naturally lends the idea to other jurisdictions, and Coughlin says “preliminary work” is underway to do something similar in Malaysia.
The Middle East would also make sense, he says. But not India, the country most closely associated with a love of gold.
“We’ve always put India in the ‘too hard’ basket.”
