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A Chinese Virtual Currency Challenges the Yuan
Radon360 writes "A Wall Street Journal article reports that China's fastest-rising currency isn't the yuan. It's the QQ coin — online play money created by marketers to sell such things as virtual flowers for instant-message buddies, cellphone ringtones and magical swords for online games. In recent weeks, the QQ coin's real-world value has risen as much as 70%. It's the most extreme case of a so-called virtual currency blurring the boundaries between the online and real worlds — and challenging legal limits. A Chinese Internet company called Tencent Holdings Ltd. designed the payment system in 2002 to allow its 233 million regular registered users to shop for treats in its virtual world. Virtual currencies are in use in many countries — but nowhere have they taken root more deeply than in China."
I wonder how long before we see future's markets in virtual worlds...
converting real money to virtual money is a huge business. look at all the people spending $100 dollars for some World of Warcraft gold for their level 70 mount or whatever. there's a fine line between hobby and sickness.
"Simplify, simplify, simplify!" Thoreau
Aren't all currencies virtual anyway? Does it matter that one can be printed on paper and one can't? I know there is more to it than just that, but as long as people deem it as valuable does it matter?
Currency is just an agreement on a medium to symbolize value. A coin or a bill is just a piece of paper or metal, just as bits on a server are equally mundane until someone agrees they mean something more.
So, except for the legislative issues, is there really a fundamental difference?
.: Max Romantschuk
They have little intrinsic value and few are backed by anything other than government hot air.
That is incorrect, currency has to be backed by gold.
No. It doesn't have to be.
Post World War 2, Gold standard was replaced by the Bretton
Wood Monetory system, which was also based on Gold Reserves.
However, the US (under Nixon) totally shut off gold based
currency in 1971. Very few currencies are gold backed
currently.
Read up on the Federal Reserve Bank.
If that doesn't shake your faith in US currency, nothing will.
I only look human.
My mother is a halfling and my dad is an ogre, so that makes me an Ogreling
As the article mentions (yes I did read it), there are already market-makers of a sort for the QQ currency. Essentially, they convert QQ dollars to yuan and back. Like all market-makers, I assume they charge a spread that allows them to earn a small percentage on each transaction.
Clearly, the barrier to development of this virtual currency market is that the Chinese Government (or any other government for that matter) doesn't want it. There are a few reasons, but the most obvious are loss of control, dilution of "real" currency, and inadequate backing of the currency. For example, the Chinese government has control over the supply of yuan (they print it), and back the yuan's value. QQ coins on the other hand, are only "real" in the sense that Tencent allows you buy things with them. While the Chinese government will always support the yuan, Tencent can't guarantee the QQ will always have value. If Tencent went bust, or had an employee suddenly issue billions of QQ dollars, the value of the currency would plummet.
Given the above, this currency will never be allowed to exist peacefully with the yuan. It will never be used for big business to business transactions, so we'll never see specialized markets for lending or futures.
Gold has intrinsic scarcity. Paper doesn't. BTW, the US government have printed, 8 trillion dollars worth of paper which is currently being held off the market by national reserves.
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If virtual currency was backed by a government, it would be currency. But backing by a company, is different and as pointed out by the other responses to your post, inherently more risky.
In many ways I only deal with virtual currency by using my debit card. Virtual in the sense that I never actually saw that amount of federal reserve notes. However, I will not, ever use any virtual currency that is not backed by a real government with a sound monetary policy.
Well.. maybe. Or Maybe not. But Definitely not sort of.
The intrinsic value of money is it's market value, which is why people get so confused over it's nature. It's still a commodity.
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The problem is that virtual currencies such as the QQ dollar are NOT traded on a currency market, and never will be.
Just to point out that the QQ dollar is worth what people will pay for it. Big deal if it isn't officially traded - the market is there and it's already being traded.
Since the virtual currency will never be traded on an open market, its impossible to value your assets correctly
Not true - it may trade at a discount because it's traded in a subordinate market, but that doesn't mean it's impossible to value it correctly.
Recall paper money came to be as a more portable way to carry gold. This electronic currency is there to facilitate online transactions that otherwise couldn't occur because of Chinese restrictions.
Funny how the market always finds a way.
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Money isn't inherently a symbol of value, the symbolisation of it in that way is something people add, and are encouraged to add by governments and banks. It's basic nature is that of a commodity; If everyone has a million dollars, then a million dollars is worthless. Creating more coffee does create value Does it? We have wine lakes in France. Wine which nobody wants. They're turning it into ethanol to get rid of it, they can't sell it.
http://news.bbc.co.uk/1/hi/world/europe/5253006.s
All value comes from demand, if there is none then no matter the supply it's worthless. In general, money always has a high demand because it can be easily traded for any other item but even that demand is satiable.
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