Privacy versus Transparency and Inflation

This is the second part of the in-forum Guild meeting on finances. There are two goals of this thread, to discuss selecting the US$ as the standard currency for accounting and to publish a register for complete transparency of the treasury. A complicating factor is that this could lead to a compromise in privacy if names are revealed in the treasury.

Finances
Issues:

1. Inflation leading to loss of revenue
   
2. Privacy versus transparency discussion

Discussion:

1. Convert base currency to US$
   
2. Publish a register
   
3. Discuss privacy versus transparency issues

~Ulrika~

This subject has been discussed in some detail in the Monthly Financial Report: August 2005 thread.

Inflation

The recommendations made near the end concerning inflation were the following:

1. Base all fees on the US$. The US$ fee does not change without a vote.
   
2. Still accept payments in $L. Set a monthly exchange rate based on GOM plus 5%.
   
3. Hold no assets in L$, instead converting them to US$ as soon as possible.
   
4. Return all prior investments to US$ to recover losses due to inflation.

Register

Additionally, to make it easier to follow city finances, I believe that we should publish a complete register to see all income, much like we do with the city vendor here. Due to privacy issues, however, we might want to restrict this information to citizens only or even obscure names on the register. What do you think?

~Ulrika~

I'm still not 100% convinced on the "need" to change the official currency to US$, of course, but a different issue is that the sim will always cost US$195 to pay, no matter how much the L$ is worth, so all fees regarding to land should be based on the value in US$, and have people pay either in US$ or L$, however they prefer.

I also favour more transparency, but using avatar names instead of RL names in the accounting, except where people wish to remain completely anonymous. For now, it is a compromise — you should be able to know exactly how much money we're transacting, but not necessarily need to know who exactly is paying for what.

The notion of holding L$ for payments is a tricky one. I tend to follow Ulrika's suggestion of converting L$ to US$ as soon as possible. At the worst scenario, if we need to pay in L$ for something, we can even convert it back — for a profit, if the L$ continues to fall, although I'll be interested to see what happens with the new system (no ratings, no bonus stipends) in a few weeks. This will artificially create more demand in L$, and the L$/US$ has to change. And, of course, right now it's impossible to predict what will happen when the 1,000 new residents that join every day (oh yes, that's right!) have a tool in-world that allows them to buy L$ directly. All economic textbooks tell us that the L$ has to increase in value with those measures, but we really have to wait to see.

In the mean time, it makes sense to me to have the most US$ we can get, at least for a while until we see what happens.

Question. I've tried this link repeatedly in the last few months, in order to collect info for the monthly financial report. For me, it shows only a single line item; a total number of transactions, followed by a total value of all transactions (which is not the same as the balance in the account). Is this page working correctly? If so, is there something about a browser which would prevent the individual items from being seen?

In addition, the "Balance" page, which I have relied upon for the monthly account balance, now shows a balance amount blank. Thats a new development since I recently looked last time. Same question. Is it working, and if so, is it something with the browser? I use the standard IE.


Sudane

Hmm, you're right, Sudane. Using almost 99% of the time either Mozilla Firefox or Safari, I never noticed what happened when I used Internet Explorer. You're right - even the Mac version of IE only shows a single line! It's definitely a browser problem

Rest assured, the information there is quite detailed to the last cent! While you wait for that to be fixed, grab a copy of Mozilla

In my role as treasurer, I'll try to comment on these issues relating to financial matters from a technical point of view. Probably any plan is do-able, but any given approach may have repercussions perhaps unforeseen by those who are voting on them. So I'll try and provide that kind of input.

In the matter of Neualtenburg currency, two things are clear. (1) There are two currencies which must be handled. (2) Only one currency can be the currency of the city and its reports, and the other currency is the "foreign" currency.

If, as is currently configured, the Linden is the currency of the City, then all Linden currency transactions appear directly as they are, and all US dollar transactions are converted into the L$ equivalent. We do have the option now, for those accounts which are US$ accounts, to report them out in US dollars. But the important "overview" reports, the Balance Sheet and the Income/Expense Statement, are converted to Lindens.

If, on the other hand, the US$ is the currency of the City, then all US$ transactions appear directly as they are, and all Linden transactions are converted into their US$ equivalent. Again, we can display those accounts which are only Lindens in Lindens. But the "overview" reports are all converted to US dollars.

Technically, either system will work. The books can be converted to having US dollars as the currency of the City, if thats what people want. (Technically, the books will have to start from scratch, with the historical data being imported into the new books. This is because the "Asset" and "Liability" accounts are each intrinsically of one currency or the other, so they have to be re-created.)

But let me just raise some basic points, some of which have already been mentioned.

1) The Linden is the currency of the City. If you buy something in the City, you pay Lindens.

2) The issue of responding to the flucuation of the Linden against the dollar is not directly dealt with by converting the currency of the City to dollars. Let me try and clarify this more.

Great concern exists in the fact that the value of the Linden is dropping against the dollar; that our Lindens are worth less. We say this because our major expense is our monthly payment to the Lindens, which must be in dollars. But as we know, ultimately, the dollar fluctuates in value too. So really here, the monthly payment is defining what the "standard" of value in our SL society is. The US dollar is becoming, in a way, the "gold standard" for the Linden currency.

What is that? Gold is considered to have more or less a fixed value in the RL world of all human beings (amazing!). Actually, gold itself has fluctuated a whole lot in the last 40 or 50 years, but, leave that aside. Every human being accepts gold as a standard.

Now, as a country's currency begins to fluctuate, many people, the absolute most conservative, call for gold currency. It has real value, so, when you hold it in your hand, you're holding value. But its not very practical as currency. (It's heavy!)

Most people, on the other hand, when faced with a problem of currency flucuation, would propose that a new "method" be used to relate the value of the local currency to the standard gold. Supposedly, the most conservative propose "making fixed", "fixing", the currency/gold ratio. Thats one solution. Other solutions, meaning other more complex formulas, often provide less trauma to the country's economy.

But only that select conservative few propose actually converting their currency to the universal standard, gold. In the case of Neualtenburg, where what actually is the local currency is very clear, I suspect that converting our currency, our "books" so to speak, to US dollars is like converting our currency to gold. It addresses a very real problem, but it does so in a rather impractical fashion.

So, if in fact the purpose of switching our base currency to the US dollar is to respond to the dropping of the value of the Linden in relation to the dollar, I would suggest that there are better ways to do that.

One proposal, already circulated, is to recalculate the Monthly Fee for those people paying in Lindens, on the first day of each month, based on the GOM exchange rate. City income from the Monthly Fees is far and away our largest source of income, so while this plan does not address the lowering value of other Linden sources of City income, it will have a large impact. And I feel it to be a much more appropriate response to the serious problem of currency exchange fluctuation.

I'd certainly support such a "floating monthly L$ fee" system. I've previously suggested that this plan should really be voted on by the people it affects. But the decision is for the Guild to make.


Sudane

First a big thank you to Sudane for explaining this so thouroughly and simply.

This confirms my suspicion that the "changing to US currency" idea is really an extreme solution that is both unnecessary and also not very well thought out.

I would like to add that I have great concerns over how we seem, as a group, to get wrapped up lately in intense discussions about perceived problems that turn out to be mostly just nothing. To judge only by reading this forum it might seem like we lurch from crisis to crisis, when in fact everything is going rather well IMO.

I wasn't going to mention this because I dont want to influence debate or colour anyones opinions on the topic, but since I am not in the RA and wont be involved in the upcoming debate over it, I might as well let my opinion be known (again!). Changing to US currency (especially with the associated issue of paying with RL credit cards), is a complete non-starter for me and I suspect other members as well.

Personally I have already decided that if in fact we do this, I will likely be withdrawing from Nburg the next day. Hopefully this is not percieved as an ultimatum (another reason I did not mention it previously) I just wanted everyone to know that for some folks (me of course ) how this issue is decided affects their participation in the project itself.

I think it is foolish to invite such possibly serious consequences over what I consider to be a "piddly" financial fear (not even an actual problem, just a fear). Fear is a strong motivator, but not a good basis for making decisions.

This is what's known as a "departure ultimatum". It's an extreme political tool that can be used by citizens outside of the existing governmental system to affect undemocratic and unmeritocratic outcomes. Because of that, it's actually not allowed, as can be seen in the constitution:

Again, the reason for this is to prevent the circumvention of proper governmental channels for dispute resoluton.


Just to make my point, Imagine if Sudane said she would stop paying the bill, if things didn't go her way. Imagine if I said I would delete every structure in the city that was mine (75% of the city), if a bill didn't pass. Imagine if Catfart said he'd immediately pull out his investment, if the church were updated. We must avoid ultimatums at all cost.

~Ulrika~

I see you're crafting a US$/L$ to gold/US$ analogy, however that analogy doesn't state the advantages of keeping the current system. Can you provide a bulleted list of benefits that accounting in L$ provides?

The benefits of accounting in US$ can be broken into two categories, investment and payment.

Investment

1. All initial investments are in US$ and should be shown that way for clarity. ( Converting them to and display them as L$ even though their value is pegged to the US$ is confusing and strange.)
   
2. With US$ bond holders can relate their coupon and compare it to the initial investment easily. ( If L$ is used, what exchange rate do they use? If there's a register, will they have to convert every month's value using a different currency rate or will the entire history of the register be recreated from scratch every month?)
   
3. Easy to understand investments will be more likely to attract future investors. ( Imagine trying to explain to future investors that the investment is pegged US$ but we'll be showing it in L$ with an exchange rate that changes on a monthly basis.)

To summarize, since the investment is already pegged to the US$, we should show it in US$. Doing otherwise will make tracking investments more difficult and could turn off future investors.

Payment

1. All our liabilities are in US$ thus income should be shown in US$ for clarity. ( None of us can figure out how close we are to break even because the use of L$ has led to a devaluation of income and general confusion. Can anyone say exactly how close we are to break even now?)
   
2. Land prices pegged to the US$ are constant. ( Due to inflation and deflation, land prices pegged to L$ will either lead to a shortfall in city income or overcharging owners for land compared to those that pay in US$.)
   
3. Payments in L$ are still welcomed at GOM plus 5% set once a month. ( Due to inflation and deflation, land prices pegged to L$ will either lead to a shortfall in city income or overcharging owners for land compared to those that pay in US$.)

To summarize, since our liabilities are pegged to the US$, we should show it in US$. Doing otherwise makes tracking city financial health more difficult, as well as making income fluctuate with the value of L$.


I believe in an alternative proposal, the idea is to adopt the US$ as a standard but continue to show values in L$. That eliminates all the problems we have with inflation, however the problem with clarity still persists. Because the L$ is a moving target, the values we see always have to be backed out using the exchange rate of the day, making month-to-month state-of-health tracking confusing.

Things are complicated enough. Investments are in US$, liabilities are in US$, let's just do our accounting in US$. This won't affect those who pay monthly in L$ at all.

~Ulrika~

I don't have any problem with paying either in $L or $US, however I would prefer $US and that a subscription payment system be setup in PayPal. I would expect that there be other means of payment as well, but that would be easiest for me.

I think putting that part in bold will be helpful for us less money/accounting savvy people.

Oh heck. Just tell me when it's all over.

Hm ... I don´t mind paying in L$ or US$ either.

But I see that this virtual platform has its own currency and it could be expected that we also do only use Linden Dollars.

On the other side there is a monthly bill for the server in US$. All payments that "feed" this bill should be in the same currency. In this case I would like to see the amount in L$ in-world but in US$ on the Nburg webpage.

This is to avoid mixing up both worlds.

Please excuse me, that I will not jump into this debate too deep as my knowledge of English is not good enough to express my thoughts thoroughly. Most of the time I have to rewrite a pragraph several times before I click on "submit reply". And even the wording might be wrong, as http://dict.leo.org could give me words, that are not very common in English. ( I am not fishing for compliments. )

Mel

Naturlich können Sie auch auf Deustch schreiben.

~Ulrika~

I acknowledge that either system will work. I attempt to point out possible repercussions of using a system with which we are not familiar. There is really no need for me to point out the benefits of accounting in L$, since its strengths and weaknesses are a matter of experience for us. Your points are well taken.

I've got no problem with this, and, in fact, this can be done whether or not we base our accounting system on the L$. As I said in the previous post, asset and liability accounts, of which each bond account is one, whose value is denominated in US$ can be reported in US$. I have never done this because I was never asked. I have, simply because I thought it was a good idea, ocassionally sent to bond holders a statement of their account. I had no feedback. If the feedback is that we wish to see the figures in dollars, thats no problem.

It's very easy to see how close we are to break even. Income/Expense Statement. Revenues minus expenses. The issue is not seeing how close we are to breaking even. The issue is seeing that number in dollars. If we feel we must experience the financial existence of Neualtenburg in US$, then your proposal is fine. Remember, for many citizens, the US dollar is just as much a foreign currency as the Linden.As I mentioned in the previous post, this is an exchange policy issue. Simply converting to a base US$ currency does not address the issue of the dollar/linden conversion rate policy, or, how much do those citizens pay who pay in lindens.


Sudane

I don't understand what you mean by this. I'm curious because I know how important accepting payments in L$ is, so I want to be sure I understand everything.

~Ulrika~

Hmmmm --You know me and my medieval solutions ---


So here is my suggestion!

Moneychangers. Yes -- you heard me correctly --
Here's how it works.

N'burg changes to a solid US$ standard, but this creates a problem! There are people who don't wish to give up their RL privacy. So -- each month a moneychanger who has set their own exchange rate for Lindens to Dollars, accepts Lindens for payment to the City Treasury in US$, with all appropriate contracts signed.

So Let's say Fraulein Privvy doesn't wish her personal info known to the City Treasury -- she engages the services of the Moneychanger to pay her monthly bill to the city (naturally he sets the exchange rate and may elect to engage in usury but ya can't get something for nuthin)

Moneychangers are like Merchants in that they provide a service industry to the community and could be the organic start of Banking in Neualtenburg.

Since I care not about my privacy, If N'burg does wish to convert to US only payments, I'd be willing to set up a Moneychanger's office on my own property.

What think?

After thought, I'm going to have to weigh in with Sudane. She brought up several points I had not considered in my own initial support of converting to US$.

Since all in-world transactions are in L$, it follows that most of our financial transactions will also be in L$, at least once methods of income apart from the land fees stabilize.

However, we do have to pay our bill in US$.

Therefore, the suggestion of establishing a floating L$ land fee linked to the US$ (as this fee is really just a way of dividing the overall server fee) but maintaining our books in L$ seems wise to me.

What you've advocated is that we use US$ as a standard and account in L$. This is unwise as it will lead to enormous confusion. Let me give you an example of a register evolving over a few months using this.

Rate: US$1 = L$250
Jan L$350

Rate: US$1 = L$310
Jan L$420
Feb L$450

Rate: US$1 = L$200
Jan L$300
Feb L$310
Mar L$350

As you can see, every month we'll have to go back and redo our register to account for the new value of the L$! If we don't do this, we'll have values listed in different months using different exchange rates. We must account in the currency which is our standard. If we'd like to keep a separate set of books in L$ for in-world transactions, we can do that like I do for our vendor.

~Ulrika~

To show the confusion accounting in L$ while being based in US$ creates, look at this post from another thread:

See what a pain in the tush accounting in L$ is? We have to convert every value, state the exchange rate, explain how things are still pegged to the US$, and then give the values in US$. Why not just do it in US$? It's just common sense.

We will always accept payments in L$. This topic simply concerns accounting practices and currency standards.

~Ulrika~

exactly why I maintain we should set the standard of payment to $US dollar amounts, and let those who wish to pay in Lindens engage the services of a private usurer who adjusts the exchange rate every month and pays the bills for his client in $US money to the Treasury.

The Treasury gets $US to pay LL directly
The Citizen get their privacy and ease of payment.
The Moneychanger gets a small profit perhaps and a oneway ticket to hell!

Only if they have to set up in the temple, uh... Church I mean.

Ja, aber das verstehen nicht viele ... befürchte ich.

I suggest that as long as you do this:

you will have to do this:
That's simply my technical opinion. The challenge perhaps should be how to make this process the simplest and most efficient.

You accept the need for dual currencies. You have to accept the burdens.


Sudane

I still dont understand why, if our financial expert that is actually *doing* the books has no problem with things the way they are, we should change everything around because you or me (or anyone else) is confused.

If the accountant understands the books and they are auditable by other accountant type folks who all agree that this is "standard practice," why wouldn't we go with the experts on this one?

Additionaly, since large parts of the Neualtenburg Government structure are based on the idea of personal merit, why are we fighting with the only person in the sim who has the greatest "merit" or credibility with regards these issues, and the person who's personal finances are most at stake?

I think Sudane has waay more credibility with regards to financial knowledge than any of us and if she say this is not a good idea I tend to agree with her.