Encouraging users to increase their L$ float

Currently the price of the L$ is largely dictated by the L$ float that we all carry. I use the term repeatedly here, not to be dogmatic, but hopefully to simplify a sometimes complicated discussion.

The definitition of float I am using is the balance we carry in order to do our day to day L$ business.

If everyone was to push their float to 0 (get rid of the L$ in their account) that would require rapid selling on the Lindex as soon as we got our L$ .. this would cause immediate and massive L$ devaluation as we rushed over each other to ensure that our L$ was going to be quickly purchased.

In some cases we might do this if we lost confidence, en masse, in the value of the L$. We would want to get rid of our L$ and trade it in for something with a more stable value.

Fortunately, there are reasons we have to carry L$ floats, and thus the L$ continues to hold some value.

For example:

- SLExchange needs to hold a float when people purchase via USD on their website and they need to have a large enough float to payout sellers in L$.

- Land barons will carry a float when they perform arbitrage on regular land assets. In theory, they could buy that L$ when they need it, but simply re-using L$ profits from other sales makes more sense as they do not have to suffer the 3% penalty from selling.

- Retailers will carry a float in case they have to refund users.

- Game operators will carry a float in case someone goes on a winning streak at their entertainment business.

- Regular users will carry a float as they save up for that land parcel or that item they are looking to buy.


These floats are not being sold on the Lindex. If you want your own float, you need to buy L$ from either SL via premium subscriptions, the lindex (pushing the price of the L$ up), or another exchange.

You can also create goods/services that will encourage regular users to give you their L$ from their float, but it also encourages them to save up their L$ by enticing them with interesting content.

Which segues me into the point of this post:

How can we encourage people to increase their L$ float?

I think the most profound way is to pay interest to people who carry a larger float.

Do this by charging people who are keeping their float small and are selling rapidly (ie, at a high market price) and use that to pay those who wait to sell at a lower market price.

For example, if I were to sell my L$ now at 275, you could charge me an extra 10% for the quick sell. If I were to hold the L$ (in my account or on the sell list, both I consider to be a part of my float) and wait to sell at 265, the transaction could be for free.

This will have multiple effects:

1. It will encourage people to hold a larger float, which will decrease the sell side supply and therefore keep the price of the L$ more constant.

2. Some people will actually purchase L$ at a higher price and sell it at a lower price. They will profit from an artificial float and decrease the supply of the L$ at the same time.

3. It will halt the fall of the currency somewhat and increase confidence in its value. People will be less enclined to carry a minimal float.

Downsides:

Yes, absolutely, this will push people to other exchanges. This is something that will require monitoring, and my suggestion here is to remove references to competing curreny exchanges and to encourage people to participate soley on the Lindex.

Some people will be crying for my head here, I suspect, but I believe there is a balance between free markets and central banking, which is what this is.

The L$ goes through cycles of boom and bust and the people at LL HQ have a superior understanding of when various marketing programs will go into place and are in a better position than everyone else to try to tame those cycles of boom and bust, which is something that a program like this could do.

I hope if you do have criticisms it will be something other then simply the cry of "liva la laissez faire!".

And yes, more sinks would be another solution, but those are really a tax on our economy. I would rather that we all just held onto our L$ longer as a community in general.

Of course, your suggestions assume that the average user fairly regularly sells or buys L$ on Lindex (or by other means).

I just have my single, basic account, and I don't pay tier or own land, so I don't really have any ongoing 'expenses' other than what it costs me to import textures for my creations. I make things in-world and sell them, to finance the things I do for fun in SL with my friends. Virtually all the money I earn in-world is spent in-world.

I already have pretty much all the avatar skins, hair and clothes and other stuff that I really 'need'. So unless something particularly strikes my fancy, like a new HUD to enable my Avatar to swim, that I just purchased, I don't often pay USD for L$. My little L$50 stipend plus what I earn from my sales goes to pay for whatever 'little luxuries' strike my fancy, like a new dress now and then, plus covers my development costs for making new creations. I suppose if my L$ Float, as you call it, ever got fairly large, I might sell off some L$ to regain some of the USD that I spent during my first three months, getting set up. But it's not a transaction I would do very often.

As you mentioned, as a retailer I do tend to keep a certain amount of L$ Float in reserve, in case a customer wants a refund. (Hasn't happened yet, but it could). Mostly my L$ Float is just there as a reserve, in case a pretty thing catches my eye, and I want to buy it.

So... how would you suggest encouraging someone like me to 'save ther Lindens', and maintain a higher L$ Float?

Well, my suggestion assumes that there are people who are currently selling L$ on lindex who can afford to invest in their float and reap the financial benefit of the program I described above.



Actually, you are a perfect member of our economy. I can't imagine how you could do anything differently.

I suppose this makes me an 'imperfect' member of the economy.


Once January hit I began to sell off $L earnings regularly and repeatedly, and in hindsight it has been a good move (so far). It is my current plan as well.



What you are asking me to do is prop up the market with my own money.

How would that serve my interest, other than in a 'we had to destroy the village to save the village' sort of way?

(note - no emotions or jabs intended here, just plain, honest discussion)


As far as my in-world business goes, if the $L slides drastically I can change prices on everything in less than half an hour.

Thus, I almost don't care what the $L does.

Say it dropped to 1000 L$ for 1 USD - so what? I adjust prices to match, and remain unaffected.

Convince me, and I'll certainly alter my policies.

I do the same thing. There is no incentive for me to hold a large float.




Near the end my post above I proposed a program where people who sold at a slower pace would be compensated financially with 0 transaction fees on selling on the lindex. Those who sold quickly (as you and I are doing) would be financially penalized.

In a way, those that sell quickly do pay a price, just as you propose.

For instance, if you wait to sell at 265, you do make more money than if you sell at 275.

So (and I'm just trying to work this out for myself) - what you are proposing makes the sale at 275 cost *even more* and the sale at 265 cost *even less* - thus putting a strong, constant upward pressure on the market.

As best as I can tell.

Would this not put buyers of $L at a disadvantage?

In a way - it seems like a powerful brake on the economy - which *is* a valuable mechanism at times, especially during times of panic.




I suppose the question then would be: is this such a time?

100k $L at 265: USD 377.36
100k $L at 275: USD 363.64

difference: USD 13.72, or about 3.6%

Change from 265 to 275 over 10 weeks, I'd have to disagree with you.

Same change over 10 minutes, I *would* agree with your plan.

Anything inbetween... not quite sure yet.

Markets do a marvelous job of allowing individuals to decide how much cash reserve they wish to hold, and in providing incentives for entrepreneurs to buy float in exchange for paying interest (or loan float in exchange for collecting interest).

The poster's suggestion seems to be that he wants an unidentified entity (usually "the guvment" to "pay interest to people who carry a larger float.." He calls this "profound," I call it "perverse."

Unless I misunderstand the suggestion, it is exactly contrary to the normal process of markets, which pay interest to those who reduce their float by lending it to one who needs it to invest. It reminds me of government programs that pay farmers to NOT grow corn or wheat, in order to improve the price for farmers who contribute to Political Action Committees (and in the process driving up the cost of food for poor folks).

The poster seems uncomfortable with the natural workings of the market. I'm uncomfortable when someone tries to "improve" the free market with perverse incentives. Several centuries of economic history suggest that attempting to "jawbone" a market in one direction or another usually does little but tire the jawboner. And attempting to pay people to do the exact opposite of what is in their economic best interest is usually a doomed and expensive governmental boondoggle secretly designed to favor some special interest.

Controlling the interest paid on float is part of what central banking does.

Check http://federalreserve.gov/ for more information. The wiki entry is pretty good too.

Basically, the fed, by purchasing treasuries on the open market, increases (or decreases) the rate of interest for banks holding treasuries.

When inflation is too high (prices are increasing too fast) they will sell treasuries on the open market which has the effect of increasing the overnight lending rates, or interest paid on holding said treasuries as banks lend each other money.

The proposal above is an attempt to suggest a similar tool that LL could use to tame the cycles of boom and bust in our economy. When things are going well and the L$ is fairly stable, they can ease off on the measures I suggested. When the currency begins to deflate, they can use these tools to encourage an increase in the float.

Stability is important when planning and investing. Seeing a reasonably flat line on the Lindex graph gives people confidence to purchase L$ and to invest in the SL economy because they can predict better what will be happening in the future.

I understand the instinct to cry "free market' .. However, as with all things in life, there is a balance between anarchy and careful planning.

Iron, I think I'm familiar with the Fed's open market operations. They buy dollars from the public on the open market in exchange for T-bills and T-notes from their inventory, or else sell dollars from their reserves on the open market in exchange for T-bills and T-notes held by the public, depending on their intended effect.

But you did not suggest having LL buy Lindens on the open market with dollars. That would decrease float, at real world cost to LL.

Nor did you suggest having LL sell Lindens on the open market for dollars. They already do that, at whatever the market price is, with a service fee.

You suggested that some unspecified person "pay interest to people who carry a larger float." How is that like open market operations of the Fed?

The fed doesn't buy the treasuries with gold or yen. There is no 'real world' cost to them.

Here's a good description of some of the things the fed does. Notice how it's controlling the market via structural manipulation and not via some 'real world cost' that you implied.

For example, nowhere does it say the Fed is buying money or treasuries with gold or foreign currency, it's just controlling how much and when its fiat currency (the greenback) that it prints is getting moved around.

My point here, and frankly (no pun intended) I think it's a good one, is that LL can tame the cycles of boom and bust with structural manipulation rather than buying up Linden Bucks with USD reserves.

I think if residents are concerned about the wildness of the L$ roller coaster, residents should band together and form some sort of central reserve, or "float", which operates alongside of the free market. This seems like a better approach than rigging the market itself in hopes of some perticular outcome. Then again, I bet that there are not many residents out there who are concerned enough to actually rise to the occasion and DO something.

The only way I will increase more L$ - by buying it - would be an unconditional guarantee of it having a resale value should the game close.

It makes no sense to me to have, say, $100 tied up in a 'virtual currency' that has no use or value to anyone once Second Life ceases to exist. If, however, there was some sort of guarantee that upon game closure you would receive back a $ value per L$1,000 - whatever it may be - then I wouldn't have such a problem tieing up real cash in a game.

One thing that really makes me feel uncomfortable about SL is the fact that there is no way to earn money apart from the weekly L$500 unless you buy it, or sell content to other players, and that it has a L$ > real money exchange value. There's too much competition and capitalism in the real world for most people to actually have fun, and I don't like that SL rotates so much around it for a huge proportion of active players.

Lewis

What types of additional ways to earn L$ are you looking for? Some monsters to kill or quests to complete? There are other MMO's out there which work in this way.

I think rewarding those who invest in the economy at the expense of those who do not is not 'rigging' the market.

Also, I am not sure that some of the pejorative phrases being bandied about here are advancing the discussion.

I think the issue of rapid inflation (which we have yet to see, I agree) is a risk that is worth some serious attention and discussion ..

I also believe there are other solutions other than simply taxing the economy with more sinks worth persuing.

I think rewarding those who invest in the economy at the expense of those who do not is not 'rigging' the market.

Also, I am not sure that some of the pejorative phrases being bandied about here are advancing the discussion.

I think the issue of rapid inflation (which we have yet to see, I agree) is a risk that is worth some serious attention and discussion ..

I also believe there are other solutions other than simply taxing the economy with more sinks and these solutions are worth persuing. The risk of experimentation is small and the reward quite large, if it works.

I think rewarding those who invest in the economy at the expense of those who do not is not 'rigging' the market.

Also, I am not sure that some of the pejorative phrases being bandied about here are advancing the discussion.

I think the issue of rapid inflation (which we have yet to see, I agree) is a risk that is worth some serious attention and discussion ..

I also believe there are other solutions other than simply taxing the economy with more sinks and these solutions are worth persuing. The risk of experimentation is small and the reward quite large, if it works.