Brave New World(s): From International Finance to Inter-Virtual World Finance

OK, here’s one to ponder: a Chinese company, Anshe Chung Studios, has just issued a press release concerning its construction of a financial system that world support investment across the boundaries of virtual worlds on the Internet, such as Second Life and Entropia. Here’s how they put it:

Anshe Chung Studios is preparing to launch a virtual financial market, financial products and a set of services that are going to, for the first time, allow direct capital flow and investment across virtual world boundaries. This step will be the first of many in the creation of an open, cross platform Metaverse economy that transcends individual virtual worlds.

“Some virtual worlds like Second Life (R), Entropia Universe (R) and IMVU (R) have demonstrated the enormous economic potential that exists when key sectors of a virtual world economy such as content creation, trade, banking and services are privatized. This has lead to a boom in each of these worlds that has yet to be matched by any other economy, real or virtual”, says founder Ailin Graef a.k.a. Anshe Chung. “Now the time is right to go further and link these exciting spaces together, to begin with the creation of the global Metaverse.”

“In the real world, the flow of capital and investment across national borders has always been a driving force for political progress, economic reforms and the emergence of a global conscience and economy”, adds Guni Graef, CEO. “We believe that allowing residents in a virtual world, no matter which one they have chosen to live in, to easily diversify their portfolio of virtual investments into other virtual worlds is going to lead to a paradign shift. At ACS we are convinced that once capital is flowing freely, people, goods and services will follow and eventually we will see incentive and pressure for the emergence of open tools and standards. It is our vision that one day even traveling across virtual worlds and taking your belongings with you should become as easy as a mouseclick.”

The new financial market will allow Second Life residents to invest their Linden DOLLARS (L$) directly in ventures such as banks, malls or biospheres in Entropia Universe while those who earned their fortunes in Entropia dollars will be able to easily diversify their investments into assets such as Second Life virtual land funds, virtual game development businesses or the IMVU fashion design industry.

Of course the analogy to international economics is striking. Yet here the movement is not from the national to the international, but from the discrete virtual worlds to an inteconnected metaverse (a term which I believe was coined by the author Neal Stephenson).

While the mechanics of the Anshe Chung market are not fully clear to me, what I do surmise is this: the clearing and exchange system would be fully governed by private contract with a single company. It is, in essence, a proprietary system with some unspecified exposure to “real world” public regulation. This is by contrast to stadard international economics in which the relation of private agreements and public regulations is relatively clear (or at least we have a sense as to how to resolve debates over who regulates what).
How the evolution of the online economy will interface with the mainstream economy—and economic regulation—is still an open question. See this report (and, if you follow the link, note the exchange rate info on the right column):

[Anshe Chung Studios], based in Wuhan, China, said its new platform would not directly offer to trade virtual currency for real cash — a practice known as real-money transfers. But Entropia and Second Life both allow real-money transfers, which in the case of Second Life has led to scrutiny from real-world tax and law enforcement authorities.

The new platform may create increased opportunities for virtual world arbitrage, allowing users to take advantage of pricing differentials between markets. For example, Entropia, created by Sweden’s Mindark SA, offers a fixed rate of 10 Project Entropia Dollars for 1 U.S. dollar. In Second Life, the Linden dollar exchange rate fluctuates according to supply and demand; it currently trades at L$286: US$1.

Despite the hype from some quarters that the online economy is its own entity, separate from the regulatory dinosaurs of the “real” world, I would not sell the mainstream regulators short. How the interactions of old economy regulators and new economy companies evolve will play an important role in determining the success of private attempts at financial market-construction. Moreover, whether this one particular attempt to build a “virtual” financial transfer system will take hold or if it will be overtaken by another privately-run system is a question that will be left to the market.

But, in any case, the interactions within the online economy and across the online economy and the mainstream economy are becoming more complex both in financial sophistication and in implications for regulatory oversight.

Hat Tip: Futurismic