> From: "Reid Jackson" <[EMAIL PROTECTED]> > Date: Wed, 25 Jun 2003 23:13:32 -0400 > To: "e-gold Discussion" <[EMAIL PROTECTED]> > Subject: [e-gold-list] Exchange Rates (was Re: Speaking of cutting loosses)
--- Hi John, I felt moved to respond (inline below) to some points you raised. However, before reading further, please see: http://www.wikipedia.org/wiki/Exchange_rate --- Thanks for the link. Although, I spent four years in business school taking every available course in finance and economics, so I already know about exchange rates. > John of Cambist said on Wednesday, June 25, 2003 11:43 AM: "" When Omnipay instituted their new "straddled spread" pricing policy (meaning they charged on both inexchange and outexchange instead of selling at spot + x% and buying back at spot) I wrote a letter to Doug Jackson and others at e-gold/Omnipay recommending that they not follow this policy, and that it was more important to e-gold's circulation to support a policy to buy at spot. It used to be that $1,000 worth of e-gold would get you $1,000 US from anyone, but now it gets $990 or $980 depending on if you use a regular provider or Omnipay. That has some users, like your customer, wondering. "" > Please observe that: > If you exchange USD for EUR, the market maker captures a spread. Yes they do. > Market Makers straddle spot to... > 1) minimize exchange rate risk so that... > 2) they are less likely to lose money and... > 3) more likely to make money I am not sure how straddling spot, as opposed to having a spread between spot and x% over spot, reduces exchange rate risk in anyway. I also don't see how straddling spot makes a material difference to Omnipay. If before Omnipay had a 4% spread (between spot and 4%), it now has the same 4% spread (2% under spot and 2% over spot). Profit-wise Omnipay's position has not changed. (Note I seem to remember Omnipay had a 5% markup, but according to Reid it was 4%) However, as I pointed out this changed the pre-existing culture for years which was $1,000 US of e-gold would get you $1,000 US in outexchange. Further, Omnipay's decision changed the situation for market makers because by selling at 5% and wholesaling at 2%, exchange providers had a 3% markup to match Omnipay's price, or could beat that price. The new system of Omnipay's 2% rate and 1% wholesaling reduced the margin to 1% when you satisfied demand by dealing with Omnipay. I do know that exchangers which sold e-gold but did not buy back from the public, like Gold Mountain Exchange, are out of business. True, exchangers can rely on ordinary customers selling gold, and this is what Cambist has almost always done, but since the volume of buyers and sellers varies greatly and is unpredictable, it was useful to be able to purchase from Omnipay if necessary to ensure liquidity in the e-gold market. I do note that with a 1% wholesale rate Omnipay's profit with exchange providers has gone up; by buying at -2% and selling at 1%, there is a 3% spread, as opposed to previous arrangements where omnipay bought at 0% and sold at 2%. > This practice has been a commonplace long enough to border on common sense. And yet Omnipay for years did not do this, but instead sold e-gold at 4% over spot and bought back at spot. --- For these reasons, if you choose OmniPay as an exchange counterparty: If you exchange USD for AUG, OmniPay captures a spread.If you exchange AUG for USD, OmniPay captures a spread. --- A spread certainly, but a spread between what and what? John wrote: "" Instead, most exchangers have lowered their inexchange rates and now only buy back e-gold at -1%. The new policy also put the squeeze on exchangers because when Omnipay lowered their rate from 5% to 2% but they kept the wholesale e-gold rate at 1%. "" --- Corrections: 1. OmniPay's retail Ask for AUG was previously 4% above Spot and was lowered to 2% above Spot at the time OmniPay straddled Spot. --- I seem to remember that it was 5% above spot, but since that information is down the memory hole now, I'm like Winston and I don't have any hard evidence. --- 2. OmniPay's wholesale Ask for AUG was previously 2% above Spot and was lowered to 1% above Spot at the time OmniPay straddled Spot. --- Yes, that's true. --- You are using the wrong OmniPay numbers (see above): 4 - 2 = 2 2 - 1 = 1 --- I recall 5 - 2 = 3 and now 2 - 1 = 1. Of course, at 1% it is not possible to run an exchange business anyway, which means going through Omnipay is not that viable an option. --- 2. Assumes that other exchange services must match OmniPay's rates to get business. --- What reasons would someone pay higher rates than Omnipay? If someone is into HYIP they won't be concerned about rates since they are expecting 10% returns in a week. Those involved in fraud also don't care about rates. But for serious users I can't see why they would pay 1-2% above Omnipay's rate. Maybe casino users are willing to pay more. Maybe Omnipay's service is that bad. Although it is noteworthy that before 11/2002 nearly all exchange providers were cheaper than Omnipay. Now we (Cambist) are the only exchange provider cheaper than Omnipay, and all other exchangers are more expensive. --- OmniPay still offers wholesale InExchange rates to accredited exchange services provided they meet wholesale minimums. Your business is always welcome. --- It is my understanding that until you reach the wholesale minimum, you would have to pay regular rates, under which conditions it is almost impossible to make money. --- OmniPay does indeed have competitive impulses, tempered by these facts: 1. Some of OmniPay's best customers are other exchange services 2. OmniPay is a service of G&SR, who serves as Operator of the e-gold system. 3. There is an intersection between the set of G&SR Directors and the set of e-gold Ltd Directors. --- Omnipay and e-gold are closely connected, which does put Omnipay at a privileged position with access to new e-gold and ability to sell bars in case of needed liquidity. In some ways Omnipay is like the Fed, and an e-gold center of last resort. --- 4. e-gold Ltd totally agrees (see your comments below) that a vibrant, diverse exchange market for the currencies it issues is and will always be in its best interest. --- Although a diverse exchange market (lots of competitors) is not in Omnipay's interest. Speaking of vibrant and diverse exchange markets, GoldMoney for example has recently shunned 3rd party providers, and costs to use Goldmoney have risen and circulation is down. 3rd parties have raised rates to accept Goldmoney to reflect less demand and liquidity. We had a major business client who wanted to deal with Goldmoney, contingent on being able to buy and sell large amounts cheaply. Before there was enough Goldmoney business to accommodate them, but because of GoldMoney's association with Kitco and shunning of 3rd party providers, we were not able to help them. They thought that Kitco's 2% outexchange fee, 2% inexchange fee and Kitco's non-responsiveness to excessive to do business. --- P.S. Want to part with e-gold AUG at Spot? Then buy a book, or a pocket knife, or a magazine subscription, or webhosting, or handmade jewelry, or a vacation to the Caribbean, or a coffee maker [or whatever...] from one of the many merchants who prefer Better Money (TM). Exchange services aren't the only businesses that accept AUG! --- I would love for there to be more businesses accepting e-gold, but that community is still small, and one of the biggest and most useful merchants, Banana Gold, could not stay in business profitably. Proxy store is here, and I hope they are here to stay. I do know that several exchangers are looking to sell or get out of the business, and some, like Gaithman's and Gold Mountain have already closed. I'm sure the reasons for this are varied, although a year ago these were all profitable business with no desire to go anywhere. One thing to note is that the fewer exchange providers out there, the harder it is for exchangers to operate since there are fewer places to buy extra inventory if you need it, or sell extra inventory if you need cash. I think e-gold is great, and the growth of e-gold is important to the growth of our business. We have been promoting e-gold constantly for the last 2 years and have always served as the lowest-cost point of entry to the e-gold system. - John --- http://cambist.net --- You are currently subscribed to e-gold-list as: [EMAIL PROTECTED] To unsubscribe send a blank email to [EMAIL PROTECTED] Use e-gold's Secure Randomized Keyboard (SRK) when accessing your e-gold account(s) via the web and shopping cart interfaces to help thwart keystroke loggers and common viruses.
