Jim points to:
China bans online 'gold farming' by Dave Rosenberg
China has unveiled the first official rule on the use of virtual currency in the trade of real goods and services to limit possible impact on the real financial system. The Chinese government also spelled out the definition of "virtual currency" for the first time, which includes prepaid cards of cybergames, according to a joint announcement from the Ministry of Culture and the Ministry of Commerce Friday. It said:
The virtual currency, which is converted into real money at a certain exchange rate, will only be allowed to trade in virtual goods and services provided by its issuer, not real goods and services.
So effectively, the virtual currency is locked into one obvious thing, one scope, that we all feel good about. It is such a feeling of de ja vue that I feel I have to write about it.
In the early 1990s there was a phenomena called digital cash that rode a wave of hype. Superficially it surrounded the DigiCash company and invention in the Netherlands, but it was also driven by the European smartcard invention.
In response to the normal and baseless FUD, the Bundesbank (central bank of Germany) decided that digital cash in all its forms must be banned for all except banks. The reasons for this I won't go into at the moment. So, the Bundesbank led a project to create a Directive (European super-law) to reserve all issuance of money to the banks. It created a sort of exception that said "if you look like a bank, smell like a bank and taste like a bank, then you can be a money issuer."
Nobody much was fooled. Digital money took off in the Americas and other places, where either the powers-that-be understood and left well alone, or they didn't notice, and ignored. Later on came the cleanup effort.
After a decade of waiting, the Europeans realised they'd been tricked. So they rewrote the directive to be much friendly, in 2000. It still wasn't enough because they still thought they knew how to do this, and they still thought that banks had a reasonable case. Now, in 2008, they've just released another directive that significantly opens it up, and allows full virtual money to be issued by a non-bank.
It's still tight, far too tight for innovation. But there are clear signs in there that they no longer believe this should be banking, and we can probably predict that by the time the 2015 directive is released, it will be workable.
Now here comes China, around 15 years behind the Europeans:
The ban is primarily aimed at "gold farming," an Internet-age phenomenon in which players in less developed countries collect and sell virtual gold (common to games like World of Warcraft) to wealthier gamers in the developed world. This enables gamers who have the means to buy virtual gold to get ahead in the games without actually having to accomplish the grunt work.
One assumes that China is not regulating games at all, that would be beyond stupidity for China to say what is fair and what is not in a game. Clearly, this is about getting control of the virtual money market for economics and competition reasons.
Likely it is the same old problem: the banks don't like it, and take their FUD to the central bank. But the banks won't play in it, so a devil's choice is given to the central bank: either you back us and get rid of our competition, or our competition is likely to undermine our control of payment systems. Which means that banks will be undermined, and although we just got through a global crisis brought on by those same banks, nobody much is thinking of a world in which banks are no longer the power.
The trading of virtual currency for real cash generates between $200 million and $1 billion annually, according to a 2008 survey conducted by Richard Heeks at the University of Manchester.
Not a huge market, but consider that everyone one of those fees represents a vote to take a payment away from a bank, a vote for freedom of trade. The unfortunate part of this is that any regulation against virtual money will take the virtual money away from the people. Which means that the people are being taxed to preserve the old banking infrastructure.
This is why the European Commission is slowly realising that virtual money isn't the problem, banking is. And that the solution is found in how to shift the banks, not in how to protect them. Virtual money is part of the solution, not the problem.
China may be a bit newer to this power game. OK, but in another way, it is a long way ahead of the Europeans. Although it is now making the same 1994 mistake that the EC made, it is making it in 2009, *after* the market took off. China's got a market that it can regulate to death, if it so chooses. In contrast, the EC has a bunch of corpses that it killed with regulation-at-birth, and now it's trying to resuscitate them with more of the same. I know which one I'd pick if I was a state planner.
Well, it's an old story, it just happened to be more interesting because I'm reading the new 2008 directive on virtual money, payment systems providers, etc, right now. I'll leave you with this typical western hypocrisy:
The average user will only partially care about this ban. They might be disappointed that they can't buy their way to higher status, but I assume that Tencent and other popular sites will figure out a way to do in-game trades and that eventually the farmers will figure out how to bypass the restrictions.
The ban may scare off smaller shops, but the sophisticated organizations will continue on the same path. It reminds me of Japanese pachinko parlors where you can only win tokens (wink, wink) that you take next door for actual cash.
While I'm not convinced that gold farming is good or bad, there is a very persuasive argument that it's driving economic development in China, and that anything that perpetuates economic stimulus is a good thing.
Rich people playing games will pay more for getting up in the game! Shocking! Poor people will work to provide them the ability to play at a higher level. Exploitation!
Why is it that the world's comfortable elite always bemoan apparent unfairness, and at the same time, are so quick to cut the poor people out of an honest job?Posted by iang at July 3, 2009 12:34 PM | TrackBack