Paul Vahur, of Tallinn, opened icegold.ee two years ago as a way for people around the world to turn their paper assets into gold. It is now one of Europe's busiest e-currency trading sites.
Customers can buy two e-currencies on Vahur's home page, E-gold and GoldMoney, which are backed by physical gold stored on politically neutral Atlantic and Caribbean islands. Customers wire funds into Vahur's traditional bank account, then he uses this money to buy the bullion from e-gold.com and goldmoney.com.
He then electronically transfers the gold grams into customers' icegold.ee accounts. Icegold.ee is a way to save assets in gold rather than in national currencies, which are prone to greater fluctuations in value, Vahur said.
Or they can spend the electronic bullion at online merchants. Some e-currency providers and exchangers also work with banks to issue Cirrus and debit cards that allow clients to turn the gold grams they bought on their computers back into cash anywhere in the world.
"This is just the beginning - there is great potential to grow." said Vahur.
There are currently 18 exchange providers registered with the sector's accreditation association, eCurrency Trade Association, and the association believes this number will increase.
"It is expected that this economy will continue to grow by leaps and bounds over the coming years to become a significant influence in the world markets," said Michael Moore, vice president of the eCurrency Trade Association.
Although there is still a Wild-West feel to this new industry, the idea of a non-national currency backed by gold that is electronically transferable goes back more than 20 years to James Turk, the founder and managing director of GoldMoney. The former Chase Manhattan executive developed the idea in 1979 when analyzing why a large German bank collapsed.
"But in 1979 there wasn't any technology to make it happen," Turk explained. In 1993, as he watched the Internet develop, he filed his first patent application for the idea. In 1998, GoldMoney was born and began exchanging money for gold grams.
There are now 14 types of e-currency. Most are backed by gold, but some, such as PayPal, developed as a way to pay for purchases from popular U.S. online service E-bay, are not. Several e-currencies are funded by banks in Latvia.
At least four e-currency providers have collapsed during the last two years because they were selling gold that didn't exist.
In addition to questions of reliability, e-currency has also raised concerns about money laundering. These questions of security are often raised about the international Cirrus cards issued by many currency exchangers.
Without ever stepping into a bank, clients can buy cards that withdraw cash based on e-currency assets at machines all over the world. Most exchangers sell these cards, which provide a quick and convenient way to move money around the world, for 100 euros.
The cards are issued to the exchange-provider rather than the individual client and often contain no names, just account numbers.
Although offering Cirrus cards would likely increase his business and profits, Vahur said he would not begin issuing them.
"People with these cards obviously want to keep the money separated from where they are," Vahur said. "That's a little bit different than the business we are in. When they have debit cards, this becomes like an offshore bank. We are not an offshore bank."
Several e-currency providers and exchangers say they fund these Cirrus cards with money in Latvian bank accounts.
"No other country offers this service. As a result, Latvia will be a world center of finance within the next 10 years," said Australian Graham Kelly, chief executive of goldnow.st., who recently began offering Cirrus cards issued by Latvian banks.
Kelly opened an account at Latvia's Lateko Bank and obtained Cirrus cards that he sold to customers.
The bank knew him, but not the users of the cards, which had only account numbers and no names.
"It worked well," he said. "I charged $50 per card, the cards cost me $10 each. The bank didn't know the end user, but they knew me."
But a spokesman at Lateko said the bank had decided this week to discontinue it service of issuing nameless cards, causing difficulties for goldnow.st.
"We sold heaps of them, now completely useless," said Kelly, who had to scramble to get a Caribbean bank to fill the gap.
The nameless cards are not unknown in the business.
"I can go to any country and the banks will have some version of this," said Frank Zuchristian, who runs the Holland branch of eurogoldline.com, an e-currency exchange business. Zuchristian is also the president of eCurrency Trade Association.
"In some cases they are called corporate cards or travel cards," he said during a business trip to Riga. "There are a dozen different names for it."
Zuchristian's business is among those which funds Cirrus cards from Latvian banks.
"It's just that everyone has come to recognize it can be done in Latvia," he said. "But you can't just walk off the street and get 500 cards. The banks have to have a relationship with you and know there is a business behind it."
The main reason he gets cards from Latvian banks is because banks in that Baltic state do not require an account holder to have a Latvian address whereas banks in European Union countries usually require residency for an account, he said.
Zuchristian is in the process of opening an office in Latvia in case banks there begin requiring account holders to have local addresses.
Aiga Ozolina, a spokeswoman for the Financial and Capital Market Commission that oversees Latvian banks, said she was not aware that many e-currency exchangers issue cards to clients from Latvian accounts.
But the same rules apply to e-currency exchangers as to other business clients, she said.
"It is mandatory for a bank in Latvia to know the ultimate beneficiary or beneficiaries of an account," she said.
There is no rule in Latvia or in any European country that regulates what information must be on a Cirrus card.
Other Latvian officials were also not concerned.
"We consider the financial sector one of the cleanest from corruption," said Inese Voika, president of the Latvian branch of corruption watchdog Transparency International.
Corruption in the banking industry, she said, is a small problem compared to corruption in the government or courts.
Five years ago, scandals in off-shore banks were funded by Latvian accounts, Voika said. But in the last several years, the use of Latvian accounts in these deals has tapered off as more banks have been bought by Nordic companies and as banks have begun to comply with EU standards.
E-currency providers who advertise these cards as being advantageous because they are anonymous, said most people do not use them for illegal purposes.
"Many people want privacy," Zuchristian said. "It doesn't mean they are doing anything illegal."
E-currency exchangers also said it was in their best interests to help banks do background checks on customers buying gold or signing up for Cirrus cards. Some, such as GoldMoney, require notarized copies of passports from clients.
"If we detect anything, we'll look into it further, and we have closed suspicious accounts in the past," Zuchristian said. "I feel that if I sell the currency or the card, I have the responsibility to make sure we are protected."
But they also said the industry has a way to go before most people recognize it as a practical, safe and legitimate alternative to national currencies or traditional gold.
"This is a quantum leap forward," said Turk, of GoldMoney. "Time will tell whether we are a commercial success or not."