Banks and Exchange Rate Policies for Virtual Worlds

Michael Giberson

TechNewWorld has an article about the barely exploited potential for banking services in virtual worlds, along with a discussion of the varying policies of virtual worlds toward 3rd-party financial services and exchange rate policies between virtual and real-world currencies.

Many banks and companies are getting in on the ground level, building up a presence in one or more of the largest virtual communities in much the same way that they tiptoed onto the Internet in its early days. However, what business model will eventually be successful in making a real-world profit from virtual ventures remains to be seen. Estimates have put revenues from the virtual gaming and virtual community industry at almost US$10 billion by 2009, and this reflects only revenue by the hosting companies, not those entrepreneurs and corporations that are setting up shop and looking to eventually make a profit. All evidence suggests that figure will be just the tip of a very large iceberg.

This bit suggests that exchange rate policies may be a factor in virtual world development:

Particularly in the realm of currency exchange, the similarities to the real world are striking. Second Life has an official exchange, LindeX, and a number of unofficial exchanges have sprung up. The Linden dollar is a floating currency, while some others, such as the PED, offer a fixed exchange rate to the US dollar. Some sites offer currency exchange themselves while others, such as Eve, are adamantly opposed to it. These last two points — fixed- versus floating-rate currencies and whether currency exchange is state-sponsored, as it were — are fundamental differences between sites and are driving how those economies are developing.

Interesting issues. In effect some of these economies have ‘dollarized’ their currency while others maintain a bit more ‘central bank’ control. I wonder what my grad-school friend and dollarization expert Kurt Schuler thinks of all this?