Privacy versus Transparency and Inflation

Good!



But we cannot keep two sets of books, Ulrika. It's one or the other.

Certainly, we can choose one and give what it is equal to in the other currency - on the day we publish that set of numbers. But that's about it.

Ahh. I understand what you're saying! You want to combine all accounting (RL, SL, and hybrid) into a single registry and which is locked to and displayed in L$.

I want to keep our land-purchase, land-use, and investment registry in a separate registry which is locked to and displayed in US$. I would keep all in-world registries such as our vendor sales in L$, since it is never converted.


To account for this we simply create a real-world cooperative treasury and a virtual-world treasury. We can then pay into and out of the two accounts if necessary using GOM (or other exchange service) as an intermediary.

~Ulrika~

It is at this point my limited knowledge of the subject fails. I leave it to Sudane to giver her own opinion as to whether this is feasible.

Well, no. If the ratio figure we set, in this case, 250, we never change, which has been the case so far, then absolutely nothing has been dropping except the US$ equivalency of the L$ that we collect. The revenue collected by the City in US$ has not been dropping; only the US$ value of the L$ that we collect. And, no, you are not paying 15% more per m2 than those paying L$, because the payment rate for those paying in L$ was originally set considerablely higher than for those paying in US$, in order to cover the GOM fees, and anticipated currency fluctuations. That difference is now erased, which is the reason for some need for action. Yes. Changes to dollar investment accounts are posted in dollars; changes to Linden investment accounts are posted in Lindens.


Sudane

You answered in the negative but from your description we're virtually saying the same. In order to make sure we have complete understanding we should negotiate some common terms so we're not disagreeing while saying the same thing.

In your accounting system the price of land-use fees in US$, U, was transformed to L$, L, using a fixed exchange rate, R.

When we collect payments, the land-use fees in L$, L, are then transformed to different US$, U', via a different, changing exchange rate, R'.

In this case every value is fixed except the variables with a prime, namely the outgoing exchange rate, R', and the resulting US$, U'. Because our fees are in US$, the error in collected fees is:

The fixed Nburg rate, R, was set to be 250 L$/US$ plus 10% or 275 L$/US$. The current rate, R', is 300 L$/US$. Thus our shortfall in moving from U to U' is:


My proposed solution is to recognize that the only constant is the liability set by LL in US$, given by U. To do this we simply have to set the exchange rate in Equation (1), R, equal to the GOM rate plus 10%.

With this our error will be a constant

It automatically floats without RA approval each month because we recognize that our liabilities in U are unchanging.

I'm also now willing to begrudgingly accept accounting in L$ provided the exact same information could be provided in US$ next to it. I understand ideologically that some folks want these numbers in L$ even if they vary from month to month (L'). I like the numbers in US$ because they'll be constant . (Again, no prime mark on a variable means it's constant.)



Even though your first sentence sounds self contradictory at first glance, I think you're correctly describing Equation (3). You're stating that the revenue that is (supposed to be) collected by the city, U, is not dropping; only the exchanged US$, U', which comes from the L$ that we collect, L, is. The net effect, as can be seen in Equation (4) is an 8.3% shortfall in the actual cost of the land, U, with respect to the money collected, U'.

Now your second statement is inaccurate. According to Equation (4), even with the 10% buffer, those who are paying with L$ are in actuality paying 8.3% less per m^2 of land than those who pay with US$.

Finally, we don't have to worry about corrections to US$ investments or L$ investments as long as those investments in L$ were converted to US$. If they were not, they've lost 20% of their value (100% * (250-300)/250 = -20%). If we have large amounts of L$ in Rudeen's account, that money has lost 20% of its value with respect to the US$.

Thus my initial proposal stands:

1. Recognize that our liability, U, is fixed and that the exchange rate, R', floats. We simply let the exchange rate automatically (without approval of the RA every month) float by GOM plus 10%. That way we lock in a fixed positive error rate (Equation (5)).
   
2. We do accounting in both US$ and L$ to satisfy those who want constant numbers, U, and those who want floating numbers, L'.
   
3. Finally we cash out all assets in $L as soon as possible!

I know it's complicated. Everyone take your time with this. I'll be doing some filming tomorrow, so we'll have to put off finishing this conversation for a couple of days.

~Ulrika~

P.S. - Don't even ask how long it took to write this up.

ufff ... this debate is still going on. It takes a lot of leisure time to follow this discussion. I am not completely convinced that it is worth the time.

I like the idea to accept Sudanes knowledge and let her decide how to deal with accounting.

But from a project´s perspective I would also like to have the citizens decide how to proceed. I have the feeling that not all of our current 21 (?) citizens follow this discussion. Nor do I exactly know how the official workflow for this is. But I am sure that you can tell.

Anyway, I would really like to see the different proposals without any further discussion and just go for one.

And to second Dianne: let us not take this whole thing too serious ... as long as the bills can be payed.

Mel

I have remained a bit away from this discussions, the major one being that I've left all things related to accountancy about 5 years ago, and I'm really glad not to have to look back at those

Macro-economically speaking, the relationship between Neualtenburg, Linden Lab, and the US$ is quite similar to the relationship between land in the Euro zone, the European Union, and the US$. Let me explain briefly.

Neualtenburg does not have its "own" currency, which would, under other things, keep the value of inflation in check. My previous "joke" about the Neualtenburger Taler was just a "half-joke". What I meant is not to confuse issues further, but to introduce a mechanism (our own currency) which is under the Government's control.

From what I remember of macroeconomics in my college days, Governments influence economics directly with taxes — and the value of money. This means, for instance, that if you which to curb inflation, you simply remove money from circulation; if you wish to facilitate exports, or suddenly need more cash in circulation, you mint more money. This is a very powerful tool to control an economy.

Neualtenburg right now has a problem. It uses a "federal" currency (the Linden dollar) and a "foreign" currency (the US dollar). As a Government, we cannot take measures to control the amount of L$ in circulation; only LL has the ability to control that, and we all know how well they're doing that (since the time this thread started and this post, an additional couple of million L$ were put into circulation, due to the new users' initial stipend).

If the L$ were actually stable relatively to the US$ (actually, it seems to have stabilized, but at a much lower level than previously), we wouldn't mind much, and be glad that the Lindens gave us a "strong and stable currency". All these questions would become moot. As a matter of fact, we would even make a profit from any US$ held in our name back in July 2004, when the L$ skyrocketed briefly. Very likely we would be having the reverse calculations — preferring the L$ instead of the US$, because it would be worth more. And eventually getting complains from the people paying in US$, since they would highly likely be paying more.

This is exactly what happens in the so-called (and misnamed) "Euroland" — a group of countries that have no influence over their own, shared currency. This means that in those governments they just have the option of changing the taxes since they can't control the money supply. For poor countries, who would benefit from having a less valuable Euro (more exports), that is not an option. For the remaining countries, a strong Euro is certainly an advantage (for instance, the amount you pay for petrol prices, when bought with US$, are slightly dropping).

For me, the idea of doing the accounting in a "federal" currency was never the matter. Dealing with an inadequately controlled currency is definitely an issue — but it's out of our hands. We can propose and suggest things to LL, but not really enforce a policy that would benefit us. The result is, we have to live in a "country" where overinflation is the norm, and we can't do anything about it.

Switching all our accounting to US$ (a relatively stable currency — although, mind you, from my personal point of view, every month I pay less for my tie fees, which is great ) is an option that several countries have done iRL as well, at least unofficially. Good examples are many of the Latin America countries, and the former Eastern Europe countries (before the Euro). Since their own currencies were overinflated, people simply started to use the US$ as the "reference" value, just because it was stable. Many countries — the best example being perhaps Brazil — did some amendments to their currency policy to establish a fixed price between their national currency and the US$ (mind you, the Euro also started that way). This was an "artificial" measure which resulted quite well when the respective Government also issued a series of other measures as well. With this kind of measures, in Brazil, just to give an example, inflation was 2,708.60% (!!!) annually in 1993, but ten years later, it dropped to below 4%, a quite good value for a developing country (and the best of it, it has pretty much stabilized around that value).

So, our options mainly are:

1. Keep continuing with the "federal" currency, the L$, and submit to the Lindens' ability to curb inflation (we'll have to see in the next few weeks if they work or not);
   
2. Issue our own currency, the Neualtenburger Taler, and do all accounting in Talers; establish reference values to both the L$ and the US$ in our own money exchange; have a Federal Reserve or Central Bank to regulate the value of the Taler according to our wishes;
   
3. Follow the way many developing countries "unofficially" do, which is to adopt the US$, for all purposes, as the main currency (alternative: adopt the Euro instead which will give us the benefit to pay a bit less every month for our private island, heh heh — just joking!!)
   

Creating a "national currency" for Neualtenburg would be the most fun Also, it means extra work, of course. In-world, it means creating a method of doing all the payments. This would probably be a special device you attach which contains your current balance account in Talers. It would be necessarily be tied to a website tracking each and every account (remember, tourists would have to exchange their money at the telehub for Talers as well!), so, many would definitely not like that approach (less anonymity, even if all transactions are recorded encrypted on a database and the source code of that system would be open for all to inspect). Then we would need to implement a money exchange — our own GOM, where you would be able to buy and sell Talers for either L$ or US$. In my experience, this is actually quite easy to do (the Taler-tracking system would be slightly harder to implement).

The point is, handling our own currency would have the immediate advantage of giving us control over the "value of money", but lose us the advantage of simplicity and anonymity (paying with the federal currency, the L$). Well, I agree that it's more a question of software to preserve anonymity, but verifying the claims of anonymity would be a hard task for a paranoid character

Of course, this would also mean that vendors would definitely need to be Guild-created or -approved, since all transactions would need to be in Talers. From the software's point of view, this would probably mean you'd have to approach the vendor, attach your "money purse", and have the vendor claim payment using a special command. Your "money purse" would then accept (or not) the payment claim, update it on the web server, and a transaction would be completed. It's basically the same system as LL has implemented with the L$, the difference being you need an extra object to attach to you at all times

Too cumbersome? Yes, I agree. Fun? Oh, definitely. People have been discussing in-world currencies for ages in SL. Unlike them, Neualtenburg would need that currency, and have the effective means to control it in a democratic and transparent ways. And, ironically, while we may never build our "confederation of sims" (in the political sense of similar-minded sims having a "common", federal government), we would perhaps achieve an "economic union" easier (rental communities would love to have a mechanism to deal with the L$ inflation as well!). Hmm. Doesn't that ring a bell?

22!

And yes, you would be correct about that feeling.

Please forgive us our excessively technical discussion. For those who have read all of it, you can see that even Ulrika and I have difficulty understanding our different way of seeing things. It is surely no wonder that others can get no clue about what we are talking about. For that I apologize. My only excuse is that the details of accounting can become complicated; a universally acknowledged fact.

To the best of my ability to understand them, it appears that her formulas in the earlier post are correct. Therefore, she has been led to propose the following actions:
I will try to put these points in layman's terms. And if it is the will of the citizens (in this case, I presume, the members of the Guild), then I will implement them.

(1) This item means that for those who pay in Lindens, their monthly fee will be different each month. On the first of each month, when I publish the monthly report for the previous month, I will also publish a list of every citizen's monthly fee in Lindens. Each person will have the option of paying either that listed fee in Lindens, or the amount in US dollars shown in their deed.

This method of calculating your monthly fee should you wish to pay in Lindens is exactly the same as the process by which this number has been arrived at, with one important exception. Ulrika says: "We simply let the exchange rate automatically float by GOM plus 10%". This means that since the GOM rate is changing all the time, the amount you pay in Lindens will change, not all the time, but on the first of each month.

(2) The practical implication of this, as it appears to be agreed upon, is that the accounting itself will continue to be done as it has been, but that each month, the published reports showing how we did (The Income/Expense Statement and the Balance Sheet) will be published both in L$ and in US$.

In the accounting world, these are the top level two important documents describing the health of a company. But much more data exists, so it is up to the citizens to decide what they wish to have published. Each line on the Income/Expense and on the Balance Sheet is an account, and each account is a list of all the money in and money out of that account. Any of that could be published, if it was deemed useful and appropriate to do so.

(3) I am not completely in favor of this proposal, but I'll be happy to implement it if it is what is decided. In practical terms, what it means is this. There are currently two "accounts" which receive payments in Lindens, Rudeen Edo (The Treasurer Avatar) and Uma Bauhaus (The City Avatar). These are the accounts where L$ builds up. This proposal would cause, at least once a month, perhaps 90% of the money in those accounts to be transferred, using GOM as a "converter", to the Paypal account. That's the primary dollar account. I strongly urge us not to leave funds in GOM.

The result of this is that funds built up in Paypal (US$), and are kept low in the Avatars (L$). The benefit of this is exactly as Ulrika suggests, that we *may* be able to preserve a bit more value by moving to dollars as soon as is practicable.

The down side of this is that both GOM and Paypal charge us (as a percent, not as a flat fee) for that one transfer. We already incur Paypal charges for every payment a citizen makes to Paypal. In other words, every dollar added to the Pyaypal account costs us money, and dollars which have arrived from originally being Lindens cost us even more, since they are charged by GOM as well. My strategy has been to keep the minimum amount in Paypal, only enough for the monthly Linden payment, thus incurring the least amount of fees.

Also, another downside, a smaller one, of having low balances in the Avatars is that bills which we do need to pay in Lindens, such as payments to the Guild, may have to be delayed until those accounts receive enough money to pay them.

My analysis is that if the Linden continues to drop hugely, as it has been doing, against the dollar, then Ulrika's proposal makes sense. Preserve whatever we can. If, on the other hand, it stabilizes, it makes little sense to me, since we haven't gained anything, and we've paid a lot in fees doing so.

You can see that there are benefits and down sides to either strategy. I will implement whatever the Guild decides.


Sudane

Well, after four days I finaly got up the nerve (cause I heard you were mad!), to read this thing and it isn't that bad I guess.

I never figured you for an "authoritarian" sort of person Pen, but I am realising lately from the things you have been saying (this post and the one where you said how you don't like democracy etc.), that you kind of are, and it soo changes my impression of you, which I find sad.

Believe it or not I always liked you Pen. You managed to cheer me up a couple of times on the forum (without even knowing you did), when I was feeling mighty down indeed. I always thought that we perhaps had a mutual sort of friendship going on but I guess not.

I apologise for any hurt I caused you and...
Fear not! I will stay out of your area of the forest from now on.

PS - Don't bother to reply to this post as I am staying out of Nburg forums for a while and there is nothing really to be said on this topic anyway.

PPS - However, if anyone ever wants to talk to me in person about anything like this (or any forum misunderstanding), I would point out that I am in Nburg for many hours every single day and am not hard to find.

While Dianne will not read this reply, I did want to state for the record, that I would have given the same reply as I did to her to anyone who I felt was issuing flames on our group forum. This was *nothing* personal despite what Dianne, or anyone may think. Of all the forums we have to deal with in SL, this Neualtenburg one is *very* important (if not *the* most important) to some of us. For this reason, I know I will be protective of us acting civil and like adults in this forum.

Though I am not a moderator, I do feel as a citizen of Neualtenburg, I have a right to speak up if I feel a citizen is being publicly rude to another citizen. I do *not* have to be agreed with to practice this right. And while I am less likely to call someone to task on another SL forum, where Neualtenburg is concerned I have a hard time holding my tongue.

I'll get back to this soon Sudane, right after I finish the text for the State of Play contest entry.

I also wanted to let you know that it looks like the L$ is on the slide again. It's down from 300 L$/US$ to 313 L$/US$, a drop of 4.3% in the past day or so. This is a 25% slide since we set up the 250 L$/US$ ratio and with our 10% buffer will lead to a 12% shortfall in income from folks paying in L$ if it's unadjusted.

As for our assets in L$, I'm not sure what to do. I'd hate to recommend cashing it all out only to have the market rebound, losing 25%. I don't know how much we have in L$ assets so it's difficult to gauge the impact relative to our income.

Difficult days for the L$.

~Ulrika~

The initial proposal:

1. Recognize that our liability, U, is fixed and that the exchange rate, R', floats. We simply let the exchange rate automatically (without approval of the RA every month) float by GOM plus 10%. That way we lock in a fixed positive error rate (Equation (5)).
   
2. We do accounting in both US$ and L$ to satisfy those who want constant numbers, U, and those who want floating numbers, L'.
   
3. Finally we cash out all assets in $L as soon as possible!

I've condensed your reply below:

It looks like we're all in agreement for the first two suggestions. I say we toss them in a bill for RA approval.

Because of the drop in the market and for the reasons you've put forth, I agree that exchanging our money at this point would be a mistake. We're much better off hoping for a recovery of the exchange rate to recoup our losses. I withdraw the third item.


As an aside, in the future we will have to exchange most of our L$ assets every month to cover our monthly fees anyway. The only reason that this isn't a regular procedure now (and we have a pool of L$ built up) is that we've been paying monthly land-use fees with US$ assets from land sales. In the future we should discuss how much L$ and US$ we want keep in reserve.


So, if no one has any other input, I'm going to draft a bill with the first two suggestions. I'd like for it to make it in this weekends meeting if possible. After that we'll move on to the discussions of transparency and a register. *whew*

~Ulrika~

Summary

1. Recognize that our liability, U, is fixed and that the exchange rate, R', floats.
   
2. The city would update a "city exchange rate" automatically every month (without approval of the RA) set to GOM or LL Exchange plus 10%. This will lock in a fixed positive error rate (Equation (5)).
   
3. The city will do accounting in both US$ and L$ to satisfy those who want constant numbers, U, and those who want floating numbers, L'.

Details

In our current accounting system the price of land-use fees in US$, U, is transformed to L$, L, using a fixed exchange rate, R.

When we collect payments, the land-use fees in L$, L, are then transformed to different US$, U', via a different, changing exchange rate, R'.

In this case every value is fixed except the variables with a prime, namely the outgoing exchange rate, R', and the resulting US$, U'. Because our fees are in US$, the error in collected fees is:

The fixed Nburg rate, R, was set to be 250 L$/US$ plus 10% or 275 L$/US$. The current rate, R', is 300 L$/US$. Thus our shortfall in moving from U to U' is:


The proposed solution is to recognize that the only constant is the liability set by LL in US$, given by U. To do this we simply have to set the exchange rate in Equation (1), R, equal to the GOM rate plus 10%.

With this our error will be a constant

This amount would automatically floats without RA approval each month because the city recognizes that our liabilities in U are unchanging.

~Ulrika~

I think the value we should use is "Last Close" on some particular date, like the 1st of the month. On the 1st of the month we use the "Last Close" + 10%. Last close is the value of the Linden when the market closed the day before. So in our case, it's the value of the Linden at the end of the previous month.

At this point it's clear that we should be using the exchange rate on LindeX.

Market data for LindeX can be found here.

Yes, it's very important that we set a recurring date. And I completely agree with Satchmo; the Last Close on the last day of the month is easily identifiable.

*Lindex* When did this open? Great news!

Should this stabilize, we should consider soon lowering the "Conversion Fee", now 10%, to something closer to the Lindex percentage. We will no longer need to extract the money to Paypal, so only the 3.5% fee will apply. However, we will want to watch the currency fluctuation, and try to factor that into the fee as well. A lot can happen in one month, either to our benefit or our detriment.

We will however, have a new "US Dollar" account. Our "Linden Labs" US$ account. Up to now, no cash has been stored with LL, so it has not been an "account". This will change that.


Sudane

Open beta started today. I tried it out today and it works great.

They wouldn't let me have any. *cries*

Great stuff Satchmo and Sudane.

I can have the website automatically pluck the conversion rate from the LindeX on the first of every month and then use it to update the land services page. I've already updated the code to allow for a floating L$, so if the exchange bill passes in the RA meeting, we'll be ready to go.

~Ulrika~

I wish I could tell you how that's going but my pc overheats on entering SL at the moment.

Sounds like it's time for an Apple.

~Ulrika~

Tee hee. I always wanted one of those but never had enough money to buy one in addition to my usual pc. When I'm rich ..