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Commons

Virtual Economy

Erin Shaw

The QQ Coin, invented in 2002 by Chinese Internet company Tencent Holdings Ltd., is a form of “online play money” that can be used to purchase ring tones, online game accessories, and other virtual products from the web portal QQ.com. Users can register their debit cards at QQ.com to purchase the Coins, ostensibly to buy only virtual goods. But QQ Coins have become so ubiquitous in recent years that other sites not affiliated directly with QQ.com have started accepting them as payment. The virtual money is seen as a safe alternative for online purchases, especially as credit cards are not common in China.

However, QQ Coins are increasingly being traded for real money in informal online currency markets, where speculators sell them at a various discount rates. The unmonitored trading makes QQ Coins a parallel currency that competes against the yuan, yet it has no backing by a trusted government. The only thing backing QQ Coins is the agreement that they are worth something, even if it’s pet supplies for a virtual dog.

This poses a problem for the People’s Bank of China, which strictly controls the trade of real currency but has few defenses against the unchecked growth in virtual currency. Theoretically, the indeterminate supply of QQ Coins could increase China’s money supply, leading to inflation. Also, gamblers and sex-chat workers use QQ Coins to bypass laws and launder money. Companies including Tencent are working with the government to regulate the trade of QQ Coins, but some measures have actually given them scarcity value. Although Tencent claims that it is only a commodity and not a currency, the popularity of QQ Coins could mean new possibilities for parallel currencies in economic systems.

Creative Commons image: "100 Yuan" by DavidDennis on Flickr

7-3-08

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most informative, thanks for the post

Submitted by Sanjay Perera on Thu, 07/03/2008 - 22:56.
"Conquer inner foes; triumph over your ego" -- Sathya Sai Baba

It's not the quantity, it's the quality

Submitted by siri on Mon, 07/07/2008 - 06:41.
The WSJ article estimates that there was about US$900m of online trading, or about 6.92bn yuan (at 13 cents / yuan). That make up only a fraction of one percent of China's annual growth, which is roughly 1.2trillion yuan per annum. The impact from this is unlikely to pose a threat to China's central bank for a long time to come. What would be interesting to watch, though, is whether China's Central Governemnt, always hair-trigger sensitive about any challenge to its authority and legitimacy, would allow the online community to become too independent (now with their own currency!), or whether it would subvert / capture this new trend for its own purposes.