Say you create an enormous community of Internet users who communicate with each other in an extensive virtual world. Then let's say you want to introduce a system by which those users, more than 200 million of them by some reports, could purchase things online from your marketing partners. This virtual currency could be used for purchases, promotions and transactions between users. Still good.

Then let's say that virtual currency broke the boundaries of your virtual world and became tradeable and exchangeable on other sites and real-world businesses. And, what if, if as a result of that, what if your virtual currency assumed an actual exchange rate compared with real currency?

Well that is what has happened to Tencent, operators of the hugely popular QQ network. And now the Government is taking an interest.

Geoffrey Fowler, who is based in Hong Kong but writes some of the most interesting coverage of Mainland business, and his Wall Street Journal colleague Juying Qin have written an expansive article about the QQ coin situation. The article, which is fortunately not behind the WSJ paywall, traces the origin of the QQ coin, and explains how it is filling a niche in an online community where credit cards are extremely rare.

The problem is that it's all well and good if the QQ coins are being used to buy in-world items or services, or legitimate products. But when they become exchangeable enough to support money laundering or, more likely, gambling and other vices, the Government begins to take notice:

State-run media reported that some online shoppers began using QQ coins to buy real-world items such as CDs and makeup. So-called QQ Girls started accepting the coins as payment for intimate private chats online. Gamblers caught wind, too, and started using the currency to get around China's anti-gambling laws, converting wins in online mahjong and card games back into cash. Dozens of third-party trading posts sprouted up to ease transactions, turning the QQ coin into a kind of parallel currency.

Here's how the transactions work: A small-time retailer offers QQ coins for sale at her online shop at a discount price--currently about 0.8 yuan. Customers then pay the seller yuan through a debit card, money order transfer or special online payment systems such as Paypal. The retailer then transfers the QQ coins to the buyer's account, like one might do with air miles, or even just gives the buyer access to her own QQ account (including username and password) where QQ coins are stored.

Uh oh. Sounds like things that run counter to the Chinese Government's oft-repeated mantra to contruct a more civilized Internet (or, more vigously, to "purify" it, as Hu Jintao vowed to do last January.

And, indeed, the Government is tightening regulation of virtual currency, with the ironic effect of driving QQ coins up in value. So the QQ coin grey market days look numbered. But Chinese Internet users are creative and entrepreneurial. Will something else fill the gap? The article is well worth reading in its entirety.

One of the most interesting things about Linden Labs' generally overhyped virtual world, Second Life, is that it has an economy based upon making and selling virtual items for Linden Dollars, which are exchangeable for actual greenbacks. It will be interesting to see what, if anything, China's in-development virtual world, HiPiHi, enables its users to do.

There is plenty of precedence for virtual and parallel currencies that can be exchanged for real-world goods and services. Consider frequent flier miles or loyalty points from any of countless loyalty programs. These currencies were once tightly tied to individuals, but the Internet has provided an increasingly ready platform for people to trade and exchange them. Consider Award Traveler, a company that functions as an online exchange for frequent flyer miles.

The Internet brings people together, and when people congregate, even virtually, they often want to trade, and the Chinese are irrepressible entrepreneurs and traders (and gamblers). If QQ coins are more tightly controlled, it will be interesting to see what emerges to fill the void.



Show the penguin the money

« Prev

Next »