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A Chinese Virtual Currency Challenges the Yuan

Posted by Zonk on from the now-buying-oil-in-wow-gold-thanks dept.

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."

33 of 183 comments (clear)

  1. You haven't been to Canada have you by jshepher · · Score: 4, Funny

    Canada has 2 official currencies - the dollar/loonie and Canadian Tire money.

    1. Re:You haven't been to Canada have you by zappepcs · · Score: 4, Interesting

      Not sure why you got modded as Offtopic? As pointed out, all currency is basically virtual. If Canadian Tire opened a SecondLife store maybe you would have been modded up? I know a kid that bought his bicycle with Canadian Tire Dollars.

      It is fact that in the U.S. just about anyone can print currency as long as it's in Dollar denominations and $1 of your dollars is valued/redeemed at $1 USD. The fact that the Federal version of the Dollar is the one most widely accepted doesn't mean that another currency can't be valuable.

      I wonder what US courts will decide when it comes down to treating virtual currency in regard to actual currency. Should you be able to buy $200 worth of virtual currency for $20 USD? Or will it have to have a redemption value ratio of 1:1?

      This is obviously not the case in China.

      --
      Support NYCountryLawyer RIAA vs People
    2. Re:You haven't been to Canada have you by Hemogoblin · · Score: 2, Interesting

      Well, if the currency was like any other "real" currency, the government would just use the exchange rate available on the currency market. The problem is that virtual currencies such as the QQ dollar are NOT traded on a currency market, and never will be. The Chinese government will never allow the QQ dollar to coexist peacefully with the yuan, since that would result in loss of control over the yuan. Since the virtual currency will never be traded on an open market, its impossible to value your assets correctly. That will cause a problem with taxation, but I'm sure governments would prefering losing some tax revenue over losing complete control over their currency.

    3. Re:You haven't been to Canada have you by rainman_bc · · Score: 2, Insightful

      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.

      --
      09 F9 11 02 9D 74 E3 5B D8 41 56 C5 63 56 88 C0
  2. Is anyone else here thinking about Tulips? by cyborg_zx · · Score: 3, Insightful

    I wonder how long before we see future's markets in virtual worlds...

    1. Re:Is anyone else here thinking about Tulips? by houjenming · · Score: 2, Interesting

      If it's going to happen somewhere, it's going to be in the places where the government is having trouble keeping up with what's going online. China is the perfect place. With all the "internet addiction" hospitals, it's clear that the powers that be aren't able to address/get their minds around what the citizens are doing online. Soon enough, a critical mass of people will have so much invested in what theyr'e doing in virtual worlds, that the gov't will have no choice but to adapt to the people... or just outlaw everything which they're having trouble controlling... (which honestly, is one of their typical approaches).

      But with the rate of adoption of online currencies (due in great part to population of young, tech-savvy people), and the inability for the "Old Dudes" to fully comprehend the dynamics of the online world, will cause them to have to adapt to current situations, instead of just manhandling the status quo to what conform to they can comprehend.

      The momentum of the current situation in China leave the youth with some serious leverage (by virtue of pure numbers, and their already-existing habits), just by doing their transactions, and actually gaining what they consider to benefit -- this (in my view from living in Shanghai for 4 years) will be a force that will behoove the gov't to adapt to accommodate, instead of just using the typical heavy-handed paths of legislation.

      go, kids, go! play those games! invest your money in your online games! See what they think they can do to prevent you!

      In some ways... it's just another one of the repeated peasant/working class uprisings, so periodic to China.

  3. tap the vein by bigwavejas · · Score: 2, Insightful

    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
    1. Re:tap the vein by danpsmith · · Score: 4, Interesting

      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.

      What's hilarious is that after you buy it, it's still in the game which actually makes it property of Blizzard, residing on their servers. Wouldn't it be an interesting world if this took off and you don't even own your own money anymore, and essentially have to use "disney dollars" for purchases. A nice way to go back to the Erie Canal model. I'm not saying this is what's happening, but it's an interesting concept.

      --
      Judges and senates have been bought for gold; Esteem and love were never to be sold.
  4. Someday... by SlashDev · · Score: 5, Funny

    ... we will all be in debt to the Chinese, the virtual Chinese that is...

    --

    TOP DSLR Cameras Reviews of the top DSLRs
    1. Re:Someday... by PlasticArmyMan · · Score: 2, Funny

      I for one welcome our Chines*BLAM* *thud*

    2. Re:Someday... by Some_Llama · · Score: 3, Funny

      "I for one welcome our Chines*BLAM* *thud*"
      I, for one, welcome the new Slashdot cliche eradication squad, although i don't envy the size of your task.
  5. Obilg. by otacon · · Score: 3, Funny

    In communist China currency.....oh wait.

    --
    In a world of acronyms, the words are the real victims.
  6. In a sense... by mycroft822 · · Score: 5, Insightful

    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?

    1. Re:In a sense... by rumplet · · Score: 2, Insightful

      Is fiat currency backed by gold then?

    2. Re:In a sense... by TerranFury · · Score: 5, Insightful

      Sarcasm, I assume? Modern currencies generally are not backed by precious metals at all. And in history, things besides gold have been used: the UK's pound used to be backed by silver before it was backed by gold (before it stopped being backed by anything at all), and there were gold-vs-silver debates (the details of which I've forgotten) in American history too.

      Really, what's the significance of gold? What good would it do you or anyone else? Why does it have value? It's just mutual agreement and the faith that it has a value that gives it its value.

      I could even imagine some sort of public-key cryptographic scheme used to assign value to magic numbers... Think Cryptonomicon.

    3. Re:In a sense... by Archangel+Michael · · Score: 2, Informative

      Most currency has FIAT value, meaning its value is based upon what people can purchase for it, rather than intrinsic value. In the case of US dollars, a dollar can buy a certain amount of products or services and the FIAT value is what is generally agreed upon by both parties. The dollar has no "real" value or its real value is less than the FIAT value. The piece of paper that represents the value of the dollar is not worth what the paper represents in FIAT.

      Virtual Value is very similar, but in the case of the QQ it is a currency that itself doesn't really exist, as there are no coins or bills that exist in reality. As soon as the QQ bank issues a certificate that represents a certain amount of QQ and that certificate can buy real items (eg a soda or a burger), it moves from the realm of virtual to Fiat currency.

      The distinction is that FIAT currency has standard values based upon real products/services. A virtual currency only exists in virtual worlds.

      --
      Agent K: A *person* is smart. People are dumb, stupid, panicky animals, and you know it.
    4. Re:In a sense... by Some_Llama · · Score: 2, Insightful

      "Really, what's the significance of gold? What good would it do you or anyone else? Why does it have value? "

      Because there is a finite amount of Gold, attempts to make gold (until recently it seems) have always failed, even though the possibility of making gold is now feasible it is cost prohibitive.

      This is why there wasn't a sand standard, or water standard... Precious metals are finite (without space exploration at least).

    5. Re:In a sense... by norton_I · · Score: 2, Insightful

      For a monetary standard to be useful, it has to be both scarce AND widely desired. Spent nuclear power pellets are extremely rare, but almost nobody wants them so they would make a lousy currency.

      One advantage of fiat money (I am not saying there aren't disadvantages) is that if suppliers of a few commodoties agree it has value, it essentially becomes backed by all of them. With a standard based on rare metals, you are subject to market collapse on discovery of large amounts of the ore. This happened somewhat with silver. Had aluminum ever been used as a monetary standard, it would have collapsed when electrolytic process for reducing aluminum ore was found. In a fiat money system, the price of those metals will drop when the supply becomes large, but it will not affect the rest of the economy as much.

    6. Re:In a sense... by JesseMcDonald · · Score: 4, Informative

      [T]here were gold-vs-silver debates (the details of which I've forgotten) in American history too.

      That's correct. It's part of the reason why they eventually went to a fiat system, actually. The thing is, the whole "gold-vs.-silver" argument was idiotic from the beginning. Their problem was simple: they tried to fix the price (exchange rate) between gold and silver (bimetallism). As an inevitable consequence you would rarely see both gold and silver used in exchange simultaneously. Whenever you have a fixed (or otherwise arbitrary) exchange rate "bad money drives good money out of circulation"; i.e. if 16 ounces of silver is worth one ounce of gold on the open market, but the law mandates an exchange rate of 20:1, then no one will pay for anything in gold (and visa-versa). This was a well-known principle at the time, since the same effect had previously been observed in Britain under similar circumstances. The decision to enforce a fixed exchange rate was strongly politically motived, and (as I recall) mainly driven by the silver manufacturers.

      If they had just left the exchange rate "floating" according to the demand for gold and silver the most likely result would have been the use of silver for small transactions and the simultaneous use of gold for larger ones, which is emminently practical considering the relative "value densities" of silver and gold. At present prices, for example, silver becomes cumbersomely large when dealing with more than, say, $35 worth (about two troy-ounce coins in coin form, each about twice the diameter of a quarter), whereas gold becomes cumbersomely small for anything under about $55 (1/10 ounce, about the size of a dime). Amounts in the $35-$55 gap can be easily handled by simply making change in silver from a 1/10-oz gold piece according to the store's advertised exchange rate.

      Of course it would be even more likely, given today's technology, that people would simply use some sort of electronic exchange system similar to our debit cards. Existing exchange networks, such as e-gold, permit online transfers of as little as 1/10,000-oz. (~$0.055), which tends to eliminate the need for multiple currencies. For such a system gold would probably be considered preferable for its small size (and thus ease of storage).

      Really, what's the significance of gold? What good would it do you or anyone else? Why does it have value?

      There are a number of industrial uses for gold: corrosion-resistant plating, wiring in integrated circuits, etc.; its use in jewelry, too, is partially due to its material properties (including appearance) and not just its price. It can even be formed into an aerogel and employed in supercapacitors and some kinds of filters.

      In monetary terms gold has value (apart from its marketability) both because it has a naturally limited supply and because its alternate uses tend to set a floor on its value. Fiat currencies can be devalued without limit; their scarcity is purely artificial and they have no significant uses besides exchange.

      The only reason we have a fiat system in the U.S. is that at one point in our fairly-recent history the government confiscated (stole) all the privately-owned gold (at that point the primary medium of exchange), banned its use, and replaced it with paper notes. People didn't really have a choice; they could either use the notes or revert to a primitive barter system. The ban on gold ownership/use was eventually lifted (within the last 35 years, I believe), but at that point the damage was already done -- and the stolen property was never returned. It remains to be seen whether the fiat system will remain now that it's no longer legally mandated; it took a few thousand years to develop the system we had before, and short of forcing everyone to switch yet again I wouldn't expect things to go back to normal in just one or two generations.

      --
      "The state is that great fiction by which everyone tries to live at the expense of everyone else." - Bastiat
  7. under, not over, valued by Hemogoblin · · Score: 3, Informative

    You have it backwards. Many experts believe the yuan is undervalued, which allows Chinese manufacturers to sell their goods at low prices.

    I think your comment on the stock markets is just a troll, but they're not overvalued either. The Chinese market is one of the fastest growing markets in the world.

  8. Isn't all currency virtual? by Max+Romantschuk · · Score: 4, Insightful

    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 :: http://max.romantschuk.fi/
    1. Re:Isn't all currency virtual? by Xzzy · · Score: 2, Insightful

      And it'll probably be a developer who's got some unmonitored access to the database and update privileges.

      Difference between MMO money and real world money is that there is nothing physical backing the MMO money. I admit, one could argue real world money is poorly backed itself, but at least they got some amount of gold stashed away somewhere.

      Virtual money though? It's nothing but a mysql column.

  9. Gold Standard by Frankie70 · · Score: 3, Insightful

    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.

  10. Borrow "funds" then print and payback + interest by Dareth · · Score: 3, Insightful

    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
  11. Re:Aren't most currencies virtual these days? by AuMatar · · Score: 4, Insightful

    THey're backed by the same thing everything, including gold, was backed by- the general population's willingness to accept it in trade. As long as I know people will take little bits of green paper, they continue to have value. Its no more silly than trading around little bits of yellow metal. Both are mutually agreed mediums of exchange.

    --
    I still have more fans than freaks. WTF is wrong with you people?
  12. Not likely. by Hemogoblin · · Score: 3, Insightful

    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.

  13. Nope! All currency is a commodity... by Colin+Smith · · Score: 5, Informative

    Currency is just an agreement on a medium to symbolize value. Common misconception, but one which governments are happy to foster. Actually, currency is a commodity in exactly the same way as coffee, bread, oil, gold, pork bellies.

    You see if currency were really a medium which symbolised value, it wouldn't change much. Bread, coffee, gold etc would pretty much always cost the same, they would always have the same value throughout time. Instead what happens is that over time, everything becomes more expensive, inflation. What's happening is that the currency is losing it's value. It does that because there's more of it; supply and demand. When the government('s bankers) print money, all the existing money in circulation decreases in value because there is more of it around.

    So, no, there's no fundamental difference between real and virtual money, just as there's no fundamental difference between real money and a kg of coffee.
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    1. Re:Nope! All currency is a commodity... by Colin+Smith · · Score: 5, Insightful

      If I am marooned on an island, I can eat bread. The money is useless. Cobalt is a commodity, how much use would that be marooned on an island?

      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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    2. Re:Nope! All currency is a commodity... by Colin+Smith · · Score: 5, Informative

      That's just plain stupid. Coffee has intrinsic value, money does not. Just because the "value" of money fluctuates, does not make money a commodity. It isn't stupid, it's the nature of money. The intrinsic value of money is it's market value, as the intrinsic value of coffee is it's flavour and high caffeine content.

      A currency is only as strong as the government that issued it. Nope... I live in Scotland, we have several notes, issued by private banks (not the government) which are accepted as currency, nobody even thinks about it.

      http://www.rampantscotland.com/know/blknow_money.h tm
      http://en.wikipedia.org/wiki/Banknotes_of_the_poun d_sterling#Scotland

      Have a read:
      http://www.mises.org/money.asp

      Originally almost all money was privately issued, governments acquired the process because it allows them to create and spend money without having to tax the populace. Doing so devalues the existing currency and so is a subtle form of taxation. You've been taken in by your local government's propaganda over the nature of money.

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    3. Re:Nope! All currency is a commodity... by glwtta · · Score: 2, Interesting

      It isn't stupid, it's the nature of money. The intrinsic value of money is it's market value, as the intrinsic value of coffee is it's flavour and high caffeine content.

      The "market value" of a bank note only exist because you have a reasonable certainty that someone will accept it at that value (usually a government provides that certainty). The intrinsic value of a bank note is the amount of paper and ink needed to produce it - usually much lower than the market value. I didn't say that only governments can issue money, just that money has no value without the backing of the issuer (that's kind of the definition of money).

      You've been taken in by your local government's propaganda over the nature of money.

      I'm not sure what you are arguing. How does my understanding of economics allow the government to profit from my deception? Money certainly can be issued privately, governments are usually just in a better position to do it.

      Tell me, what exactly is the intrinsic value of a Czechoslovak crown?

      --
      sic transit gloria mundi
    4. Re:Nope! All currency is a commodity... by Colin+Smith · · Score: 2, Insightful

      What is it about being a commodity implies money cannot be a medium to symbolize value? OK... It can symbolize anything you want it to. It can symbolize good/evil/philanthropy or whatever, you can make anything a symbol of anything but that's meaning which you are applying to it, it isn't meaning which is inherent in it's nature.

      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.st m

      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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      Deleted
  14. The main difference being by Colin+Smith · · Score: 2, Insightful

    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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    Deleted
  15. Who matters, not What by Bill,+Shooter+of+Bul · · Score: 2, Insightful

    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.