Idea: Give interest on L$ in user accounts

Hi all

I was thinking about the exchange rates, and how price fluctuates so unpredictably (which is bad). The goal of monetary policy should always include presenting an image of economic stability.

One of the reasons that L$ fluctuates so wildly is that there is no incentive to own any. Once anyone has accumulated/earned any L$ beyond some in-world spending money, there aren't very many investment opportunities to use L$ on.

For this reason, accumulating L$ is "dead" money - it's money that's not doing working for you.

If we added an interest on L$ held in our accounts, it would be an encouragement to "invest" in the SL economy. Right now, there's not really anything to do with L$ than to sell it, or to hold on to it if you anticipate the exchange rate will improve (speculation).

This way, the L$ has an inherent value - it has the power to "create" more L$ for the owner, much the way real money does (through the money market).

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Of course, it would be unwise inject L$ into the economy without balancing the equation - perhaps the removal of dwell or basic account stipends would balance the equation.

Some numbers that I'm thinking:
Let's suppose an annual interest rate of 4%, which is pretty good for a real-world savings account, but not as good as you'd expect for an investment account.

I remember reading somewhere once that the average avatar has an account of L$8000.

Over the course of a year, the average account would make L$320. It seems to me that removing the basic account stipend (L$50/week) should probably cover that.

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What do you think?

I proposed something similar

"Encouraging users to increase their L$ float"

/130/0a/83194/1.html


I suggested taking the L$ to pay out the interest from those who sold their L$ too quickly.

*Rubber Stamp*

Great idea both you guys..

Show me the vote!

Fascinating, Francis. Very interesting suggestion.

Your observations are quite astute. Money sitting in my L$ account is doing absolutely nothing for me. I always keep a supply of petty cash around, but beyond that, I cash out as soon as I hit a ceiling. The money means a lot more to me in my PayPal account, where I can access it via my PayPal debit card, than in my L$ account.

I suppose it boils down to incentives. How much would you have to give me on a weekly basis to encourage me to store my L$? I think it would have to be quite a bit of money for me to consider holding off my cash-out.

However, too much interest incentive here ends up creating an inflationary trend if left unchecked, which you did address.

In all, I'm not convinced the incentive would be sufficient to produce the outcome we'd hope for.

You're touching on an interesting point, though. I think there have to be more than a few ways to reward holding onto L$ rather than dumping it on the exchange.

Heh, exactly correct analysis.

As of the moment, returning once again from the Lindex "Sell $L" page, I hold exactly $L 617.

There is little reason for me *not* to cash out in full, and frequently, these days.

Exceptions are the $L 30 charge for being listed in "Find" and a modestly priced Classified.

Maybe I should have left myself with 117, but I was feeling giddy and hedged my bet.

There are some people who, if they cashed out their Linden balance, wouldn't do anything worthwhile with the proceeds but would instead spend it on some frivolous stuff instead of paying bills or investing it.

Leaving it in the Linden acount, where there is no real need to spend any money at all, since there are no needs and enough free items that you might not ever even see all the stuff in your inventory, at least means that you still have the money available for some dire need, assuming, cross fingers, that LL doesn't go belly up.

So for people with good financial sense it might well not make much sense to have a large Linden balance, but for people who would just fritter it away, it serves somewhat the function of having a safe deposit box where you store cash . It doesn't earn anything, but by being in an awkward place, it at least doesn't vanish by turning into extra ice cream you don't need and similar wasteful purchases.

For folks like that, the interest would be super nice.

I'd like to know what average avatar has L$8k, since I consider it a good day when I've got half that.

Then again, I don't really run a business, opting more for the artist/tinker life who happens to sell just enough to get by on. This might be financial suicide, but money beyond my immediate needs isn't a desire of mine in RL or in SL.

Although perhaps not that different - I tend to cash out as well when I'm over 6k or so, down 1-2k, and I buy a lot of SL junk.

it also has the power to fuel rampant inflation, no thanks

I've got about 8,500 lindens in my account

The big problem with this is that it benefits the rich, not the poor.

Those with hundreds of thousands of L$ frankly don't need any.... its those who don't have cash that are the ones who need more.

Great theory, but it doesn't benefit the people who need it.

Lewis

A few things to address here

Iron, sorry I didn't mean to claim your idea as mine. Reading over your post, I think we're after a different thing.

To summarize, if I read your post correctly, you're trying to encourage people to keep more money in their accounts. That's not quite what I'm after, although it's a side-effect of what I'm after.

This also partially addresses what Enabran brought up too -

What I want is a stable exchange rate, and to change the perception of L$. (After all, that's what makes money valuable - the *belief* that it's worth something.)

Right now, as it stands, unless you're engaging in currency speculation (ie. you believe the value of L$ is going to increase) it's just a stupid idea keep hold on to L$ beyond what you're going to spend in SL.

I want this to *not* be true.

I think that 4% anually is a good figure to start with. (It can always be changed later). This is a reasonably competitive rate with what we can expect in the real world. (At this moment, ING will offer you a savings account with a 3.8% to 4.75% APY, depending on how you count.)

You could make the argument that it would be better to up the percentage, so you could reward people for taking the risk of investing in SL. But I'm suggesting 4% for now

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SuezanneC, I don't see how classifying purchases as "frivolous" or not should be important. Money can be used for constructive purchases, but more often than not, it's used to buy things that make us happy

I wrote a post just last week about that
/244/57/82939/1.html

Economic theory tries to quantify this kind of happiness by expressing it as something they call 'utils'.

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Aliasi, back when LL still published economic data, they published that the median avatar carries around L$1k. A Linden (I forgot who) said what the money supply in SL was at the time, and some quick math gave me the L$8k/avatar figure.

What this means is that *most* people have less than L$1k, and and a relatively small number of people control most of the L$ in circulation. For this reason, it is crucial to influence the perception of those people.

Lewis,

The reason that I've made this suggestion is to help build a strong and stable economy. Charitable donations or "helping the needy" is important, but not the goal of this particular idea.

Economies have to be carefully managed - they are not immediately self-perpetuating entities. There's been decades of economic research, it seems silly not to apply it to such a fragile entity as the SL economy.

I am not the first to say so (its been rather late for me), but:

It would surely lead to more stable economy of SL. If you look at the SL economy from 20,000 ft, it now has most of the instruments installed that an economy in First Life needs to function properly. The only gaping hole is a banking system. And a capitalistic free-market economy like the one LL is setting up in SL without banks is .... kind of absurd. There are organisations "playing bank" in SL but they lack some of the most important attributes of a reputable bank.

Secured accounts that pay interest and a chance to get loans for inworld projects really would be a boon to the SL economy. But, looking at the changes coming from LL in the last weeks and months, which are clearly focused on cost-cutting, I am not sure if LL is willing to take on the burden to install such a system.

BTW: The often-cited Federal Reserve, which controls the flow of money in the USA, does not operate in a vacuum. The Federal Reserve and its pendants in other countries mostly works through a multi-level banking system.

I tend to agree. However,


I like the idea of people being able to easily raise money for projects. Securing the loan would be the hard part. But I think that the land tools could be modified to make it easier.

I tend to politely disagree.

Not much of wealthy peoples income is generated by bank accounts with 4% annual interest. Those with much cash on hand usually have many venues open to make much nicer profits. It's actually players with small to medium holdings (the "middle class", so to speak) that would probably profit from a suggestion like the one put forth by Francis.

Actually, you can't give out interest without engaging regulatory oversight. I realise this is a 'fictional' currency and all, however, paying interest to depositors would be a way to quickly get SL into the crosshairs of the IRS, the FOMC, and all sorts of picky people as we'd become an obvious and immediate tax shelter.

My suggestion was trying to get away from the concept of paying interest and rather simply charge a penalty to those kept their float at a minimum.

This getting "SL into the crosshairs" is unavoidable and might happen anytime soon. It is already possible to use SL for money laundering on a small scale. This scale will get larger with the growing economy of SL. I allways prefer an incentive to a penalty.

I don't believe that video game currency is regulated by the FOMC or SEC.

I'm no lawyer, but i don't believe there's anything stopping you from giving people L$, for any reason or no reason. Legally, the L$ has no value. Income is declared when you receive it in in the form of currency or assets.

I'm not 100% on this, but I believe this is the way it works.

Why not use real dollars in game exclusively and be prepared to take a "once off" hit on what amounts to $3 real dollars if $L8,000 is an average cash balance.

Lindon Labs would need to have what in the UK we call a "designated client account" to hold residents money.

In game, realistically the minimum size transaction is going to be one US cent, at current exchange rates that equals around $L3.

Of course interest could also be added at the Federal Reserve Discount Rate less withholding tax

PS Francis Chung....I am UK bases and I have already spoken to my Chartered Accountant about this issue.

On the assumption you are Using Second Life as a business forum rather than a game.....

Lindon dollars currently have what is called "fungible value", therefore in principal any profits made from SL and remitted back into pounds sterling are taxable.

On the other hand any lease payments to Lindon Labs in real dollars are a legitimate business expense and qualify for tax relief

It's a bit off topic but I agree with Paul. I'd keep more cash in my account if Linden Lab just charged people thirty-eight cents when they bought a tree and credited the amount to my account.

OMG th1r7y-31gh7 c3nt5111

Okay at that point I'd probably raise the price to fifty cents even.

I can get behind a push for LL supported interest payments to accounts with a minimum balance. I don't know that I would keep that balance though. Being someone who hardly ever buys anything, I tend to cash out in order to put the lindens back into the economy so people can spend it.

The biggest income of L$ in SL is the stipend.
Why not reducing the weekly stipend of ppl owning more than 100.000L$ ? or more than 16000sqm ?
Let's say 490L$ instead of 500L$ ?

The losse is not big enough (10L$/w only) to make ppl seeling L$ each time they have more than 100k ...
(Honestly... you could lower mine to 100L$/w without make my cry. Of course, 400L$ is 400L$. but if i had to choose between thoses 400L$/w and a healthy enconomy. I'd choose the economy).

I find that in-game philanthropy (supporting educators, The Shelter, FFRC, RL aid drives, etc.) to be a pleasing alternative. I don't withdraw L$ because I've just always thought of it as "play money".

I'm not saying this is what players ought do, just that they can.

LL has historically shown great reluctance to provide the tools to create credible banking services and even more reluctance to be bankers themselves. I find this somewhat surprising given their asiprations toward "something more than a game".

There was a time when stipend that would push your wallet above $L3k was not given. This policy engendered all sorts of avatar to alt transfers to avoid the cap - not unlike RL shell corporation accounting games. That which can be gamed will be gamed and this proposal would only increase the incentive for players to to cash out thus further devaluing the L$. (I think).

my proposal say a MAXIMUM loss of 10L$/w ...
loosing 500L$ when you own more than 3k have a big impact.
But 10L$ when you have more than 100000L$ is NOTHING !
I can't believe that "rich" ppl will bother managing alt account for just 10L$/w ...

Another idea is a tax, within a limit of 100L$/w, on your weekly L$ income.
If you spent 50k and earned 70k, your stipend will be ...mmm... 480L$ instead of 500 ?
it's a 0.1% tax on "benefice".

You'd be surprised.

There's a reason why their rich...

one being that their ambition and drive to accrue financial success is exactly what would drive them to do the above.

Call it a reflex reaction.