………..Pratik Shah
I was zapped to hear that there is a parallel currency in China which was originally intended to fund online gaming transactions and has now integrated with the real economy. The virtual currency in China is now being used to buy goods and services in real economy. This is a cause of intense concern for the Central Bank of China and the Chinese Government, The virtual currency is posing a real threat. Lot of attempts to restrict usage of these currency have not yielded the intended results. China has nearly 340 million netizens who traded almost 2 billion dollars in virtual currency last year, according to the China Internet Network Information Center. The Chinese government is a little worried about how much virtual cash is being traded in the country. In fact some virtual currency, like the QQ coin, is actually affecting the market for the renmibi, China’s actual currency.
Much of the $2 billion in virtual currency is used to play games, but significant chunks are now being traded for real physical goods, like clothes, food and services.The shift of using virtual currency to pay for real products is part of what’s worrying the Chinese central bank. The virtual life of Chinese citizens have reached unprecedental heights and few social groups have tried to prevent this mania by hosting Internet addiction camps and lobbying with the regulator for stricter regulations on online gaming market. The Gen Y of China are mad after online gaming. The Ministry of Culture and the Ministry of Commerce jointly issued new regulations on the use of online currency to fight online gambling and disputes over virtual currency. On June 4, 2009, the Ministry of Culture (”MOC”) and the Ministry of Commerce (”MOFCOM”) of China jointly issued a Circular on Strengthening the Administration of Virtual Currency for On-line Gaming. The Circular was intended to regulate the issuance and trading of on-line game virtual currency and indicates the government’s strong desire to strengthen supervision of the rapidly growing on-line gaming market in China. Virtual currency is a virtual exchange tool created by the on-line game operator and sold to game players to be used to exchange for online game services provided by the operator. It may be presented in the form of prepaid amount or points but does not encompass virtual items earned within the game world. An operator proposing to issue on-line game virtual currency (an “Issuing Operator”) or to operate a platform facilitating trades of on-line game virtual currency (a “Trading Operator”) will have to comply with the prudential requirements set in by the guidelines. The Circular also provides that virtual currency may be used to purchase services from the issuer only and must not be used to purchase real goods or exchange for products or services from any company other than the original issuer. This is a bold step taken by the Chinese Government to stop illegal use of virtual currency. There are concrete plans to regulate the online gaming industry and have stricter entry norms for game operators.
The Chinese Government is planning to impose limits on virtual currency to stop the practice of ‘gold farming’ which is a practice of selling virtual gold earned from playing online games to rich people. The government also plans to tax virtual currency to ensure that there is no revenue leakage to the exchequer.
Though virtual property does not have recoginition in law, they are being used as a legal tender. The key problem for crimes in the virtual world is how to define and protect virtual property as so far there is no clear definition in law. Recently there were few cases in China where complaints have been registered for hacking of virtual property and the law and judiciary does not know how to take action on a stolen property which does not have any legal recognition. However, plans are in place to recognise the virtual property for the purpose of judicial machinery and protecting the interests of the citizens.
The craze is catching up in the United States as well. In the United States the virtual gaming market is starting to undergo a similar boom. Zynga, creators of the Mafia Wars Facebook game, is due to rake in somewhere north of 100 mio $ this year on its virtual offerings. Competitor Playfish has seen 100 million installations of its games in little more than 18 months.China’s online gaming pioneer Shanda Games priced its IPO offering of 83.5 million shares at the high end of its $10.50 to $12.50 range this morning, becoming the largest stateside IPO by a Chinese Internet company on NASDAQ.
To conclude, Virtual currency as a concept is really good in terms of having an independant currency for gaming transactions. But, when such illegal and unconstitutional currency start becoming legal tender then it is a big whistle blower for the Central Bank of any country. It will devalue the country’s legal currency and pose problems for liquidity management. Chinese governemt has banned the use of Virtual currency for purchase of goods and services and this step should render positive results for the government.
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