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Introduction & The Opportunity 3 The Diamond Market Today 12 Markets unlocked by the M ONE D IAM TM UNiT 21 The problem being solved 24 Additional Market Insights 32 Conclusion 38.
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Creating and exploiting a natural diamond standardised trading UNiT.
MONEDIAMTMis an alternative asset class that delivers an investment platform for global markets in the form of a paper currency
MONEDIAMTM is breaking frontiers by developing the first standard that will support an underpin or spot price.
The MONEDIAMUNiT is a fungible diamond investment instrument that contains 10 polished diamonds, a precise selection encased in a highly secure card, introducing a standard unit of value based on the intrinsic aggregate value of this selection of polished diamonds.
The MONEDIAM system applies a mathematical value to the conventional value characteristics of diamonds, so that any given set of 10 diamonds inserted into a MONEDIAMUNiT will have an almost identical value (<0.003% variation) to an equivalent MONEDIAMUNiT. The secret lies in the process of determining which 10 diamonds from within the available stock (or available on a Just-in-Time basis via direct access to a third party supplier stock database) can be combined as having the required value for a particular nominal value and quality category.
Classification and evaluation System is based on internationally recognized G.I.A. (Gemmological Institute of America) grading scale
Impossible to tamper with and go un-noticed!!
IDENTIFYING THE NICHE ADDRESSED BY MONEDIAMTM
Bain & Company Inc.’s Diamond Industry Report from 2013 identified:
MONEDIAM’s target gap lies between the polishers, the manufacturers and the retailers.
There is room for a natural hedge between the polished diamond makers and jewellery manufacturers
In 1972, the Chicago Mercantile Exchange established the International Monetary Market to trade the world’s first futures contracts for currency.
The world’s first interest-rate futures contract was introduced shortly afterwards, at the Chicago Board of Trade, in 1975.
In 1982, futures contracts on the Standard and Poor’s 500 index began to trade at the Chicago Mercantile Exchange.
These radical new tools help businesses to manage their affairs in a volatile and unpredictable new world order.
When futures markets do not exist or cannot be used, hedgers pay steeply for the protection they seek.
Without MONEDIAM’s standardised diamond instruments, these markets have until now been unavailable to the diamond trade, making it difficult and costly to hedge price risk.
FORWARDS, FUTURES AND OPTIONS
There is an insignificant formal market due to current players not addressing the fundamental issues (such as standardisation) and dealing in individual diamonds, specifically limited to high-end specialist products which are unsuitable as underlying assets for risk hedging.
The "Rap List", created in 1978, has been used by the industry as an indicative guideline for pricing diamonds.
The Rapaport Report is the jewellery industry standard for the pricing of diamonds. The report is published weekly and given to jewellers and diamond merchants to set prices for consumers. The report is issued in the form of a table and prices diamonds based on the 5 C's of diamonds - carat, colour, clarity, cut and confidence.
A similar ADTEC list and several others circulate globally.
The Rap List, however, is an aggregated static list (prices lag) compiled from non-public data submitted by the various players in the market based on supposed arm’s length trades after the fact.
Accordingly, its “best guess” pricing basis highlights the key issues the industry faces, namely (i) a lack of standardisation (ii) which does not allow for simple exchangeability (iii) which creates an opaque and imprecise market (iv) with limited liquidity and tradability and (v) therefore high costs and (vi) almost no method for accurate and speedy price-discovery, all of which are required for an efficient diamond commodity market.
8 STAGES FROM MINE TO FINGER
The area where financing is most needed and applied in the industry is the same area which lacks standardised instruments to help hedge or at least provide an offset for the security typically provided by these producers.
Cutting and Polishing
- Consumption of jewellery and watches
- Industrial demand
- Exploration for diamond resources (kimberlites & lamproites) and evaluation of economic feasibility
- Development and construction of new mines
- Jewellery design and manufacturing
- Jewellery sales to consumers
- Cutting and polishing of rough diamonds to produce polished diamonds
- Wholesale sales of polished diamonds to jewellery manufacturers
Diamond producing Mines – Africa Diamond Occurrences
Diamond producing countries
New Financial Markets
DIAMONDS AS A COMMON COMMODITY
A jewellery manufacturer or retailer can be likened to a chocolatier who might buy sugar and cocoa futures contracts to lock in a price for some portion of its requirement for these important ingredients.
The contracts are as good as physically buying the commodities and storing them. If prices rise, the futures contracts will also be more valuable. The company can choose to sell the contracts and pocket the cash, then buy the commodities from its usual suppliers at market prices, or else accept delivery of the ingredients from the seller of the contract and buy less on the market.
On the other hand, if prices fall, the company loses some money on its futures contracts. But the same price decrease that causes that loss also caused something good: the company pays less for its ingredients.
For a buyer, the purpose of buying the futures contract is to protect against a price rise. If prices fall instead, the result is similar to buying fire insurance but not having a fire. One has locked in a price upfront.
THE NATURAL HEDGE
Mines that start producing today have no way of knowing what the price of these diamonds will be when they sell them months or years down the line. But producers who sold a futures contract committed to deliver for a definite price.
Not only do they ultimately receive cash in return for their commitment, but they also receive the contract price even if the market price subsequently falls because of an unexpected glut of supply. In exchange the producer gives up the chance to get a higher price in the event of supply constraints; they receive the same fixed price for which they had contracted.
Producing diamonds is risky enough. There is no need to add the risk of changes in market prices.
The focus is on a formal market driven by institutions and the large players in the diamond market. The underlying instrument can be owned by individuals, but this is peripheral.
The liquidity (lower costs) and speedy transparent price-discovery that can be provided by the MONEDIAMUNiT are beneficial across the market
Physical ownership of the UNiT by individuals and institutions
Indirect ownership via indices and unit trusts
Advanced hedging via derivative markets: futures and options
PROVIDING A REAL ALTERNATIVE ASSET TO INVESTORS
Speculators provide an important social good: liquidity.
Without the presence of speculators in the market, producers, bankers, and business executives would have no easy and economical way to eliminate the risk of volatile prices and interest and exchange rates from their business plans.
Speculators provide a ready and liquid market for these risks—at a price.
Speculators who are willing to assume risks for a price make it possible for others to reduce their risks.
Competition among speculators also makes hedging less expensive and ensures that the effect of all available information is swiftly calculated into the market price (price-discovery).
SPECULATORS PROVIDE LIQUIDITY
VOLUME OF GLOBAL MARKET OF LUXURY GOODS
1995 – 2010
Index 1995 – 100
100 = € 77billion
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Luxury Goods Worldwide Market Study
DIAMONDS vs GOLD vs PLATINUM
Source: Diamonds Briefing 2011
(Nominal Polished Sales)
2011 USD 23bn
2016 USD 31bn
Source: Diamonds Briefing 2011
Source: Diamonds Briefing 2011
“The MONEDIAMTMproduct is a global, decentralised currency. This means that there is no country to which MONEDIAMTMspecifically belongs, making it a viable currency to use all over the world.
This makes international transactions simple: no longer does there need to be a discussion of whether the payment should be made in the buyer’s currency – or the seller’s, nor at which exchange rate the transaction should take place.
Another big advantage that decentralised currencies have is that the Federal Reserve or any national bank does not manage the value of the currency.
This means that the currency will retain its value regardless of the performance of the global economy, similar to the value of rare metal and commodities like oil. It has no single point of failure.”
- Recent analysis by Julian Jessop,
Chief Global Economist for London-based Capital Economics