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."

Comments

You haven't been to Canada have you

[jshepher]

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

Re:You haven't been to Canada have you

[zappepcs]

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.

Someday...

[SlashDev]

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

In a sense...

[mycroft822]

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?

Re:In a sense...

[TerranFury]

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.

Re:In a sense...

[JesseMcDonald]

[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.

Isn't all currency virtual?

[Max Romantschuk]

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?

Re:Aren't most currencies virtual these days?

[AuMatar]

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.

Nope! All currency is a commodity...

[Colin Smith]

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.

Re:Nope! All currency is a commodity...

[Colin Smith]

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.

Re:Nope! All currency is a commodity...

[Colin Smith]

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.

Re:tap the vein

[danpsmith]

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.