Virtual Economy Research Network

The Ludvig von Mises institute, an advocate for the Austrian line of economic thought, recently published an article in which Matthew Beller analyzes the Second Life (SL) economy. I’m happy to see such work done on virtual economies, and published on a forum that I suppose also some mainstream economists read.

There are also some other analyses of the SL economy available. Randolph Harrison has previously written an article that’s somewhat related to the Beller’s article, both of them dealing with Linden Lab’s tendency to intervene in the “foreign exchange” markets of Linden Dollars, the internal currency of SL.

Anshe Chung, proclaimed "the virtual Rockefeller" by Business 2.0, has published plans to launch an inter-virtual world financial market, linking the internal markets of Second Life (SL), Entropia Universe (EU) and IMVU. The public launch of the service is set at early June. As I understant, the service makes it possible for e.g. users of SL to use their Linden Dollars for purchasing shares of portfolios consisting of EU assets.

The press release states that RMT is not involved. A possibly related piece of old news: Chung got one of the EU banking licenses a while back.

Last month I blogged about how the virtual Q Coins are being traded for real money and used as an online payment system in China, and how the Chinese government has reacted to this. In the comments section, one Boaz Rottenberg provided some additional details and also offered some disagreeing views. In particular, he wrote:

There is no secondary trade going on in Q Coins in the open market. The currency itself is not transferable through QQ's platform and definitely not cashable by QQ. [...] From my findings, I believe all real money trade in virtual currencies in China is in gaming currencies - mainly WoW gold.

In this posting, I describe how Q Coin secondary market trading (or one facet of it) works in practice, and illustrate the process with some screenshots. I also provide some figures from a trading site. Many people have seen the news articles about QQ, but for most non-Chinese speakers, this is probably the first glimpse of the actual Q Coin market.

A couple of weeks ago it was reported (via PlayNoEvil) that China aims to restrict the trading of virtual currencies that have become popular as a payment method even for third-party services. According to the joint announcement of 14 Chinese government agencies including the Ministry of Public Security and People's Bank of China, virtual currencies should not be used to buy real commodities and can only be traded back to real money for amounts not exceeding the original purchase price, eliminating any opportunity for profits.

This is the most severe notice so far in a series of growing government attention to the use of virtual currencies and real-money trade of virtual property in China. At the time of writing, however, RMT markets seem to be operating as usual. For example, Taobao lists thousands of sell offers for Q Coins, the virtual currency of Tencent QQ. I dug a little bit into Chinese language sources to find out more about what's going on.