Should LL raise the exchange rate?

On another thread, someone said due to current RL economic conditions, it simply "made good business sense" for LL to raise the lindex rate, suggesting that 320 would be reasonable. I thiink it would be insanity, and that in general, rate stability is more important than any specific rate (as long as it's high enough that L$1 isn't a very big fraction of a US$).

IMHO, raising the exchange rate would penalize anyone with a substantial Linden balance, and benefit anyone with debts in Lindens. The person who suggested the rate change said it would stimulate sales and benefit inworld businesses. I feel that if businesses want to lower their rates to stimulate sales, that should be their decision, not LL's.

I say that any unplanned, large change in the Lindex rate is bad for anyone who wants to make plans involving investments that involve exchanges between Lindens and RL currencies, such as investing in SL businesses. The more uncertain the future cost of money, the harder it is to make financial plans.

I think LL is taking the proper course by keeping the Lindex relatively stable, occasionally drifting it in one direction or another for specific reasons as mentioned in LL blogs.

I'm interested in what you think, and hoping to learn from it. I'm sure there's a lot I don't know about the subject.

Stability is important. Other than that, they should not try to artifically raise or lower the exchange rate.

As I buy virtually all my L$ raising the rate would benefit me personally, but I can't see it would help the SL economy much, and for those who earn RL money here it would be very very bad.

Which option would give me the most pie per US$??? That's the one I'll vote for!!

I already raise and lower my rates depending on sales and how long a product has been out.

I'm right on the borderline between businessperson and consumer by the definition you're using... I spend as much as I make and make as much as I spend.

I think Linden Labs is doing the right thing keeping the exchange rate stable. Stability does more to stimulate the economy than playing musical wallets.

The way they handle it now is sensible, you have to remember that the L$ is tied to the US dollar, not everyone lives in the USA so those of us who spend in pounds for example already feel the fluctuations of exchange rates and it's not a stable budgeting process.

Yes, I think they should offer more Lindens in this very tough economic environment. I see it as similar to all the stimulus packages happening all over the world. More money to spend stimulates an economy, along with incentives to purchase, i.e. buy one get one free, rebates, etc. And I think the dollar today was at a 24-year low.

The problem is that LL sin't "offering more Lindens" in this scenario... rather it would be everyone in-world who would be selling their products for less, and making less on each sale. It wouldn't cost LL anything (in fact they'd make more because they'd do it by dumping more Lindens on the market).

Now if Linden Labs also reduced the amount they charge for tier, for Island rent, and everything else by a comparable amount... then that would be them "offering more". Otherwise, what they'd be doing would be simply increasing the cost of everything paid for by businesses in SL. Cost increases like that would generally be passed on to the consumer (whether it makes sense or not - that's how people react). You'd end up not seeing your costs (in US$) going down much, if at all.

Well, I was assuming land would go down also. Just like in the real world. Properties appreciate and depreciate. Right now a buyer's market for rl property, should be for SL too. Though you're really buying "prims". More lindens will buy you more prims for your money.

And how is it not offering more lindens if they started giving 800 lindens for $2.50. $2.50 U.S. dollars is not really $2.50 dollars. The ever shrinking U.S. dollar.

Again, U.S. dollar hits 24-year low. Wait for 2009 when the U.S. dollar hits a 40-year low or more.

As a consumer, my SL purchases are based on my real-world dollars budget. Call a dollar 270 Lindens, call it 320 Lindens, but it's still a dollar to me.

I would hope that most residents are doing the same smart budgeting by real world impact.

Thus I doubt an exchange rate change will spur sales. It would just be an arbitrary hit to those who carry balances, and a nightmare for merchants who have to adjust prices. It would also add another proof of risk in the so-called Second Life economy, adding to all the other reasons that many residents (like myself) simply don't trust their valuable money in SL.

LL should stop fiddling with the market and let it be free. The exchange rate will of course drop which will make it harder for people to buy L$ but for those of us who just sell L$ would be great.

mt prediction: if Lindens change so dramatically that $1US becomes too far away from L$270, business people will have to alter their prices accordingly. otherwise, the whole thing will crash.

The linden dollar, like any currency, reflects the underlying strength of the economy and its governance. 265-270 is about right I think for now. Be good though to one day see the exchange at 100:1 or somewhere around there. Just for what it would signify really about SecondLife generally.

Ive always wonder about why the linden dollar is stabilised at around 270. The only thing I can think of is 300L Stipend minus 30L for a parcel listing works out roughly one US dollar change. Probably just a coincidence though. A causal correlation or something like that.

/me grins at Meade and provides a nice free cream pie, right in the kisser.

Argent, while I disagree with Arwyn's bottom line, his point that it would inject lindens into the economy is correct. LL does not control the rate directly: they don't set prices on the lindex, the market does. The only way LL can raise the exchange rate is by increasing sources or reducing sinks.

However, I disagree with the premise that injecting specie into an economy improves the economy, in general. In RL, there's currently a liquidity crisis, and the injections are intended to deal with that specific problem.

LL does not have a liquidity crisis.

The countries that injected specie into the economies in hopes of boosting the economies found that it didn't work: it's been done countless times. I remember a picture showing a German woman, before WWII, shoveling German currency into a heating stove. At that time, so much specie had been infused, that the paper money had more heat content than the amount of wood it could buy.

/me wonders how much heat he could generate by burning Lindens.

I believe the reason is that they wanted to make it roughly L$250 to the dollar; but it's well documented and researched that microcurrencies work better when it isn't easy math to convert them back into real money. (At L$250 it would be easy to know that the L$1000 skin really costs US$4; at L$280, it costs about US$3.58, but must people won't bother to do the math and will just do their budgeting in L$ instead of US$, which means more L$ are sold)

First, LL doesn't directly set the price for Lindens, they let the market do that. (Of course, if they simply put out limit offers to sell at 320, that would achieve the effect, but it's not quite how they do it, thank goodness!)

Second, the more dollars we print, the lower their value. Following your policy, the dollar goes lower still. That's an unintended side effect of the currency injections intended to solve the liquidity crisis!

This is a valid point.

I'd be fine if LL decided that rather than aiming the Lindex rate at one based on US currency, they based it on an index of the major world currencies. However, given that it's a US company with US bills to pay and the lindex flow affects its bottom line as they measure in US dollars, I'm not surprised that they don't do it.

The problem is that the biggest expenses in SL are not in L$, they're in US$, so increasing the L$ supply doesn't actually increase the "money supply"... all it will do is trigger immediate price inflation. This isn't quite the same as your example of pre-war Germany, but that does illustrate things nicely. We wouldn't see Weimar level hyperinflation because the value of goods would still be pegged to the US$... but there wouldn't even be the temporary economic boost that kept the Wiemar Republic printing money until it started them down the slope.
We had a "Linden Fueled" power plant in Noonkkot, with the smoke being ghostly "hand" logos. We had to go back to burning prims after the trademark policy announcement.

This.

People have to pay tier, and inflating the L to 320 would cause a massive price restructuring to fit accordingly. All those campers would have to camp even longer to get money. I think it's better now that it is stable.

I think you're partly right and partly wrong about the Linden reflecting the underlying economy, because the Lindex supply is managed by LL to keep it at their chosen rate. So, Lindens climbing against the dollar wouldn't mean that SL's economy is growing stronger relative to the US economy -- it would mean that LL is restricting the linden supply for some reason.

And you can't say "like any currency", either. The Chinese currency isn't gaining on the dollar despite it's incredible economic growth, simply because the Chinese government pegs its rate relative to the dollar (just as LL does, though the means may be different).

What you say is only true of unmanaged currencies. Of course, most currencies are a balance between managed and unmanaged: the governments that let the rates be set by markets often adjust fiscal policy to influence that market. In the US, the Fed does this by adjusting the rates banks can charge other banks for overnight loans, which has a big impact on the money supply, which has a big impact on the market rates.

But note that I say "has a big impact" -- and not "governs" or "controls". The way LL does it, it has a *huge* impact, since it's a fiat currency they can manipulate pretty much at will.

However, the fact that the lindex is stable shows is some indication of health. There are a number of scenarios where LL would be unable to control the lindex rate. For example, if the demand were to go so low that few people wanted them at any rate, nothing LL could do would raise the rate. The could turn on all the sinks as high as they could, and cut off sources complete, and it would take a long time for the supply to diminish enough to offset a very low desire for them. In other words, if the rate starts climbing rapidly, that would be a likely indication of a bad situation (unless it was an intentional shift by LL).

I also wonder where the 270 number came from. IMHO, 100 or 250 would be more convenient. But other than the need for small fractions of a dollar (so that things can be cheap), I'm convinced that the actual number is of only psychological consequences (once the market stabilizes at that rate).

In other words, the rate doesn't matter, but changes in the rate do.

I like this hypothesis

Is it really well documented? I'd love any pointers you may have.

That's a good point, and I think the truth is a combination of effects. It would inject lindens, which would cause prices to rise by itself, and would cause prices to rise to adjust to the RL equivalent (offsetting RL investments of time and money, etc). And right, the pre-war Germany thing was just illustrating a point, and wouldn't be the case for a one-time exchange rate change.

LOL, sorry I never got to see that!

It's Avawyn, and I'm a female in rl and in sl.

I also understand that the American economy and other economies printing fiat monies is not a solution to our current economic crisis which may last 20 or more years to fix. But we are facing a long and grinding slowing economy as well as facing the worst worldwide job losses since the depression of 1929.

A dollar torn in half is stretching things very far for most people. I think the stimulus will help some, but in true reality it is the internet that is stealing the need for human jobs. And jobs are the worry, not necessarily keeping people spending. But when people are without jobs or are taking a pay cut because they have to get a lower paying job won't increase SL's community. I predict the economic climate we are entering will decrease SL's community if the reality of what the consumer has to spend isn't taken into consideration, and the competition LL will face by not offering incentives for it's residents to stay. Even Ebay offers incentives to it's sellers to sell at a lower upfront cost, plus other incentives.

More lindens for the ever shrinking dollar may not be the right incentive(s), but it is one to consider along with brainstorming on other incentives.

Land PRICES might go down. Land TIER will not decrease, and that's what business owners have to worry about. If LL raises the ratio to L$320 (or whatever)/USD, those of us who barely make enough to cover tier would have to either abandon or decrease our land holdings, because we'd get fewer USD every time we sold our L$, and USD pays our tier.