Shakespeare on Finance

We are told by Shakespeare: “Neither a borrower nor a lender be.” Is it good advice?

Like so many things in life, the answer is - it depends.

Individuals are different, and what is right for one person may not be suitable for another. What’s more, everyone’s circumstances are different, which may require different decisions that result in a myriad of outcomes.

Consider too what has happened to money in the four centuries that have passed since Shakespeare penned those immortal words. The Bard himself lived during a time of sound money, with commerce conducted using gold and silver coins. But sound money ended in Britain and pretty much the rest of the world with the outbreak of war in 1914, though the last remnants survived until 1971.

We now live in a world of fiat currency, where money-substitutes called dollars, pounds, euros and yen circulate rather than money itself. So what would Shakespeare be saying today?

It’s an interesting question. Unfortunately The Bard is not around to answer it. But here’s how I see it.

Let’s look at lending first. The interest rate one can earn on a savings account or other bank deposit is near zero. Even though the Bank of England and other central banks are talking about raising rates - and the Federal Reserve recently bumped up interest rates slightly - central bank policy across the globe is aimed at keeping interest rates low.

More importantly, interest rates on bank deposits are generally lower than the rising cost of living. What this means is that money put on deposit in a bank loses more purchasing power from inflation than it gains from the interest income earned on the deposit. It is in effect a tax on your wealth - your purchasing power. So Shakespeare’s advice could apply to making bank deposits, but borrowing is a trickier proposition.

Borrowing is always a two-edged sword. There are always risks when borrowing money, but there can be benefits too.

For example, it often makes sense to obtain a mortgage to purchase a house, given that having a shelter is a basic human need. But even here there is a risk. If mortgage payments are not paid on schedule, one risks losing their house, and perhaps even the equity they have built up in it.

Borrowing for whatever purpose requires a lot of thought, but so does lending because it has risks too. These realities lead to an important question that tests Shakespeare’s admonition. Should one borrow or lend in today’s fiat currency world?

To help answer this question, I’ve created Lend & Borrow Trust Company Limited (“LBT”), and am pleased to say that Goldmoney is one of its investors. In fact, it is Goldmoney’s customers who I believe will understand the potential that LBT offers, as I explain in the following FAQs.

What is LBT?

LBT is an online peer-to-peer platform where lenders and borrowers interact to lend and borrow British pounds, Canadian dollars, euros, US dollars and Swiss francs. LBT is unique because it is the first P2P platform where all loans are secured by the borrower’s investment-grade gold and silver.

What does LBT offer to lenders?

LBT provides an alternative to bank deposits. It enables lenders to earn interest income outside the banking system with five major national currencies. Through LBT’s online auctions, lenders:

• may earn interest income at a rate above the inflation rate, and
• are secured by the borrower’s gold/silver, which is sold to repay the lender if the borrower defaults.

What does LBT offer to borrowers?

LBT enables borrowers to monetise their precious metals. Through LBT’s online auctions, borrowers:

• may borrow at interest rates lower than available from banks,
• use their investment-grade gold and silver bars as collateral to borrow, and
• borrow in any of five currencies: GBP, USD, CAD, EUR and CHF.

How much can I lend?

There is no maximum, and the minimum is £5,000 or currency equivalent.

How much can I borrow?

You can borrow up to 65% of the value of your gold and silver that you pledge as collateral at loan commencement. LBT actively monitors this loan-to-value and makes a margin call if it rises to 75%, requiring the borrower to pledge more collateral and/or partially repay the loan to reduce it back to 65%. If the margin call is not met, LBT sells enough metal to meet the 65% benchmark.

Is LBT regulated?

Yes, LBT is based in the England and regulated by the Financial Conduct Authority to operate an electronic system in relation to lending. LBT does this through online auctions in which its customers participate.

How are auctions started?

Online auctions are started by either the borrower or lender. Through these auctions lenders and borrowers compete with each other to seek an interest rate at which they are prepared to lend or borrow.

Can I borrow using my gold and silver in Goldmoney?

Yes, you choose how much and which metal or both you would like to pledge as collateral. At this time, only gold and silver stored in England and Hong Kong can be used.

How do I get started?