New Debit Cards Offer Options but Come with Compromises

Euro Pacific Bank’s gold debit card has been available since late last year and now BitInstant has a Bitcoin backed debit card in the works.

While these are wonderful new innovations that no doubt will help alternative currency users, the current options come with catches as they are compromises between the old fiat system and their more innovative alternatives.

Late last year Peter Shiff’s new Euro Pacific Bank came out with what he is calling “The World’s First True Gold Card”. If you open a new bank account with Euro Pacific Bank you can have your account denominated in a number of currencies, including gold. Then, after a two week wait, you can have a debit card that is linked to your gold denominated account.

The physical gold is held at the Perth Mint, which is a respectable institution, however, ‘your’ gold is in an unallocated account.

This is how the Perth mint describes  its unallocated accounts:

“With unallocated storage (existing clients only), clients have purchased an interest in a pool of precious metal held by The Perth Mint.  The Mint purchases an ounce of precious metal from the spot market for every unallocated ounce it sells to clients.  Accordingly every unallocated ounce is 100% backed.

The precious metal purchased by the Mint is recorded on its balance sheet as an asset and the unallocated amounts sold to clients are recorded as a liability.”

“In order for The Perth Mint to utilise a client’s unallocated metal, the PMDS and PMCP client agreements are structured so that a client permits The Perth Mint to use the client’s unallocated metal ‘for its own account as if it were the owner’.  As this usage provides a small commercial benefit to the Mint, it is able to offer a fee-free storage and provide simpler transaction procedures that many clients find attractive.”

And furthermore, “In order to use your debit card, it must be funded with cash…. You can also increase the balance in your Euro Pacific Bank Account by selling the gold reserves you hold in your gold portfolio. All transactions for gold trading are denominated in USD and charges apply to both the buying & selling of gold.”

But the biggest catch of all is that an account at the Euro Pacific Bank is not available to US citizens or residents. Peter Shiff blames US securities laws and regulations for his inability to offer this service in the States. While these services would not be strictly illegal, he believes it would be too costly and risky to make it a worthwhile business endeavour.

On Tuesday BitInstant co-founder Charlie Shrem told ArsTechnica  that the company will be offering customers a Bitcoin backed debit card in the next 6-8 weeks.

The card will work like a prepaid debit card and will be issued by two banks, one in the US and one overseas. Shrem says the issuing banks will not hold any Bitcoins “everything to them is US dollars,” But the debit card holder can keep their balance in BTC and “and do the currency conversion when the card is swiped”.

Again, as a merger between the Bitcoin and traditional currency worlds there are a few drawbacks to this card. It will have a $1,000 limit as per US federal regulations and the big catch is that your personal information is required. And anonymity is of course one of the biggest draws for Bitcoin.

After receiving many question since the publication of this information BitInstant released this statement yesterday to clarify its relationship with MasterCard.

“BitInstant’s partners, who are issuing the card, have been working with MasterCard for many years, and the specific relationship will be between these partners and MasterCard (not directly between MasterCard and BitInstant).”

You can sign up to pre-order the Bitcoin Debit card here.

Compromises and all, there is no doubt that these cards are good news for the alternative currency world for a number of different reasons. One of the most important is making Bitcoin instantly usable in any ‘real world’ location that accepts MasterCard.

However, at the end of all this I am left surprised by my own lack of enthusiasm. I’ve been waiting for news like this but it feels a bit like retrofitting my new iPhone with a rotary dial attachment. Gold and Bitcoin are far too cool to be dragged through the Fed’s banking structure. But until fiat alternatives are accepted in their entirety, bridges of this sort are very useful in inching towards that goal.

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