Unambiguous statement of exchange rate target

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We'll see if it gets answered...

Isn't the silence speaking volumes already? I kind of like that they're just leaving the economy more or less alone to adjust itself to reality. Of course, maybe they're intending to tinker more afterall, but are just busy.

Personally, I'd love to hear something -- anything -- from the new in-house economist on the matter of exchange rate stability.

Any clear, concise statement will be a *powerful* bit of information.



Imagine this: "Yes, we are going to return the $L to 250/USD within the year, within a 10% variance"

If they were to say it *and* do it, I would wonder who *wouldn't* rush to cash in on $L.



Or what if they said: "Yeah, 361 it is, just sit back and enjoy the slide, folks".

That would have a few folk jumping out of prim skycraper windows, eh?





Mr Zamboni, I'll wager $L 1 that we won't get such a statement. If you see one approximately like either of the above by 1 April 2006, I'll pay up. Would you take my bet?

Greenspan was the king of ambiguous and he was supposedly good at his job.

If LL wants the currency to float why would they do something specific to peg it?

They probably have a broad theoretical target range and it is probably currently within that range.

If by "broad theoretical range" you mean "zero to infinity", then you're probably right.

In the past, Philip has said that LL has a target exchange rate of "around $4/L$1,000" or L$250/US$. Given the obvious (to anyone with more than half a brain or a rudimentary knowledge of statistics) downward trend, it would be nice to know if they still care about that target, have established a new target, or have given up the notion of a target rate altogether.

You post is full if "if"s and "probably"s. I'd like to see them make a proper statement nailing down their policy. And I'm sure I'm not the only one.

You're on! I sure wouldn't mind doubling my money. I'll take your bet, even though I have a strong suspicion that you're right.

Wager accepted!

$L 1 to you, if any modestly definitive answer shows up on or before April Fools Day. I suppose 'joke' definitive answers would count, so that may help your odds...

LL's silence with anything having to do with the economy is mind numbing.

It would be nice if the Linden in-charge of the ecomy would come on the boards every once in a while and at least say a word or two pertaining to SL's economy. Preferably, I would love to hear short, medium and long term goals for the SL economy but I realize that may be asking for way to much so I'd settle for a few words...even if meaningless. Or how about a monthly "State of the Economy" townhall meeting?

Ok, so I'm a dreamer.

Well personally I think their broad theoretical target range is between $250L - $330L but that is the guess of a nobody.

And my point was that it is not in their interest to specify a target because it effects the market unrealistically and they probably dont have the tools to force it without potentially doing damage.

Yes I agree with you. SL's economy seems to have been LL's most prominent marketing tool of late, they need to back that up. If they expect people to have confidence in their concept of SL having an economy, they need to reinforce that with the appropriate and regular data.
A lot of people, even those who are here for fun but doing well in the process, have a reasonable amount invested in SL. I think we should be armed with information, so we can fairly ascertain the relative risks involved and the general health of the economy. It shouldn't really have to be a dream.

As always, as soon as the L$ starts to slip a bit further, the economy posts flood the forums.
I have noticed though that ever since the land auctions went from paying with L$ only, to buying land with US$, the value of L$ has done nothing but slip away. I know that LL did this so that they can get more money quickly, but I say we eliminate the ability to buy any land on auctions with US$, and revert back to buying with L$. This will remove more L$ from the economy and boost the value of the L$, as it would be flowing out of the economy and back to LL.

Think about it. where is all the L$? Its with the land barrons! They hold most of the L$ because they constantly buy with US$ and sell land for L$ and then cash it out back into circulation. so now we have the L$ simply circulating within the economy, and not dissapearing back to the lindens with land purchases from the barons. So as long as the L$ keeps circulating old stale L$ and the stipends just keep adding to the pile, the L$ will do nothing else but slide in value until there is so much L$ in circulation that it becomes worthless.

All of this comes from the ability to buy land and mass sims on auction with US$. Force everyone to buy with L$, and more L$ will be purchased from the currency exchange to buy the land. Does anyone see any holes that I missed?

If your marketing strategy depended almost completely on "play a game, make money" and your counsel has told you that attaching any real value to your play money was a grave liability, would you make affirmative statements of policy once you realized that your off-hand remark about what you hoped the exchange rate might be and that you hoped it would be stable has been widely interpreted as some sort of edict?

Now this I believe, unlike the various stipend arguements.

Just think about the new mainland sim auctions that are currently up (8 x $1,000 USD) -- at the current exchange rate (286 -> 1) that would remove 2,288,000 linden from the economy in less then a week. Which would by itself move the exchange rate nearly -3 Linden against the dollar. And that would probably repeat every week. The Linden hasn't dropped much more then 3 linden a week, so it would play a very large part in stablizing the linden.

It would probably also stabilize the land market, because as the linden stabilizes and perhaps gains on the USD -- it'll increase the cost of purchasing new sims, and would cause the existing land to start being bought up -- thus reducing the land glut.

Excellent info Games Prototype!

I suggested same thing 5 months ago and it didnt happen and wont happen, because it means loosing 30000-40000 USD per month for the LL.
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11-29-2005 Kazanture Aleixandre wrote:
"
I saw the topic and decided to write.
I didnt read any of above posts. Because i dont know english well.
But i know economy&business very well.
It is for sure $L is dying with highest inflation in the world.
Two immediate movemont MUST be done to save balance:
1-> Do not make real $ auctions. Make them all $L. So people will buy $L first. To buy lands. I know Anshe Chung will hate this idea. And lindens will also not like. Because they will not earn directly from usd dollars. But they will earn from $Ls while selling them(to lindens:do not use extra $L to sell. Only sell what u get.).But sl is like a country. It has its own dynamics. And no country in world sell lands using outside money. It kills economy.
2-> Do not give 500/ week to premium accounts. Make it 250/week.(this is not necessary at all if u do first one.)
3-> Remove basic accounts. And make trial accounts. After a month people must buy premium. This will create foreign currency.And it is the medicine of inflation. And will also kill "alt" inflation.
4-> Dont afraid creating a real economy in sl. if u do these steps. sl will save you and players both. Because it has strong dynamics. Like foreign currency income. And a dynamic stuff selling economy.
I know nobody will listen my suggestions:
1->Bigs will not listen:
-> Anshe Chung will not like because if inflation goes up she is increas,ng land prices and she doesnt care about inflation
-> Ginko will not like because the inflation is decreasing their real usd interest rates which they give to people.
2->Lindens will not like:
-> Lindens will not like because it is confusing, selling lands using $Ls but actually they will not lose anything. It is only more complicated. They just need 2 good economists to rule $L, not only software developers.
3->"Alt" owners will not like:
-> "Alt" owners will not like killing basic accounts. actually this step is not critical the only critical step is. Giving up selling lands with usd.Sell them $L.

You cant use any common economy model or theory to explain SL economy.
SL economy has over 400% cumulative yearly inflation according to today's data.
Yes u can try to model it. IMF has done in Argentina. And ofcourse didnt work. You need immediate solutions.
Sell lands(islands and auctions) using $L not usd. This is the ONLY solution. And find 2 good economists for linden lab.
linden lab will lose nothing if they use a "SL Federal Reserve Bank" system. You will buy lands from them using $Ls they will collect them in "SL Federal Reserve Bank" and "SL Federal Reserve Bank" will be able to sell $Ls to people. Actually after a time you will also buy $L s from "SL Federal Reserve Bank".
I mean, if they have economists, they will tell them how it works. Lindens will lose nothing they can sell lands using $Ls not usds. At last no difference between them. But they need "SL Federal Reserve Bank" system as i said. only for buying and selling $Ls. AND they must not put extra $L into the "SL Federal Reserve"
"

It is very true and obvious to all but the most blind(*passed RBD his dark glasses* anyways...) that land auctions not stipends are whats driving down the Lindex. LL can NOT sell sims for L and continue growing properly. Sell a sim for USD and they have money to buy another sim. However I think it WOULD be good if they took the money they made OVER $1000USD and used it to buy back Lindens. Also they need to keep an eye on the damage they are doing to the lindex and moderate the flow of new sims to a rate the Lindex can survive rather than wreck the economy to rush into achieving that 1k new mainland sims in a year goal. Most of the money we get from selling L's goes right to LL to buy sims. Every time LL releases a batch of new sims they are demanding the entire economy to cough up 10's of thousands of USD they can NOT keep putting that much strain on the economy at the rate they are currently churning out sims and expect it to hold up.

ps. In the days after the last auction batch we went from 280-282 to 286-290 yesterday was stipend tuesday the $L recovered to 285. Can we please stop the ignorant whining about stipends and focus on real problems? lol

Well, I have to say that if done right, LL won't loose the amount of money that you say, but the way they get the US$ will be redirected to a massive boost in US$/L$ currency exchange transactions. True that eventually, the land barons hving to buy all the L$ to purchase their sims and land will exaust the SL economy of almost all L$ and in theory we could see the value of the L$ rise to L$150/1 US$ or more, but things change in SL on a whim anyways, why don't we just try it out? We already pay through the nose for land tier to cover the rental costs of the servers that run the sims. I see no reason why making land only purchasable with L$ would hurt the LL pocketbook. Like I said, it is monetary redirection of where the funds come from.

My target regarding the exchange rate is to get LL to stop quoting it as $280. That's backwards. It's US$3.57/kL. My way, when the value of your L$ increases, the exchange rate (gasp) increases.

What if it were only used for the less then full sim auctions?

If they ever got their system automated, when an account expires or land is abandoned, and an automated system picked it up to put it on the auction block within 72hrs, for sale in lindens... I doubt auctually getting it working would take more then 40 man hours for one of their programmers, and would reduce the staffing overhead of manually putting up those lots for sale. And as a bonus, they wouls have an increase in QoS for the account holders...

To enforce my suggestion of the land auctions turning to L$ rather than US$, here is the current auction list. Now look at this list and see if you can find a trend.:

Parcels
Item Price Time Left
Salgu 001 (128,12 60992 m2 (1) US$1,000.00 Bid Now!
Minoa 001 (128,12 46096 m2 (1) US$1,000.00 Bid Now!
Mandu 001 (128,12 59712 m2 (1) US$1,000.00 Bid Now!
Maeshil 001 (128,12 64368 m2 (1) US$1,000.00 Bid Now!
Ge 001 (128,12 60016 m2 (1) US$1,000.00 Bid Now!
Yangpa 001 (128,12 65536 m2 (1) US$1,000.00 Bid Now!
Fletcher (47,15) Mature 1024m Parcel (1) L$4,600 59m 59s
Bonga (16,97) PG 2048m Parcel (1) L$9,510 2h 14m
Netherbeck (53,22) Mature 1024m Parcel (1) L$4,610 5h 29m
Manitoba (145,16) PG 1024m Parcel (1) L$4,400 6h 14m
Vari (72,51) PG 2192m Parcel (1) L$10,020 7h 14m
Dosojin (128,25) PG 1024m Parcel (1) L$4,400 7h 44m
Jubata (82,221) Mature 4096m Parcel (1) L$19,010 8h 29m
Seefeld (236, 107) Mature 4608m Parcel (1) US$70.00 12h 59m
Paw Paw (234,3 Mature 2304m Parcel (1) L$11,010 14h 44m
Seefeld (172,100) Mature 16080m Parcel (1) US$245.00 21h 59m
Warmouth (114,125) PG 10448m Parcel (1) US$160.00 22h 29m
Celadon (192,203) PG 9376m Parcel (1) US$143.00 1d 4h 59m
Gye Ran 001 (128,12 65536 m2 (1) US$1,001.00 1d 7h 54m
Netherbeck (128,137) Mature 35152m Parcel (1) US$536.00 1d 8h 59m
Yeot 001 (128,12 58480 m2 (1) US$1,000.00 1d 13h 3m

1) Now the way everything is supposed to be listed, is entire sims are listed first at a US$ bidding rate which starts at 1KUS$. which translates to L$285,951 if it was to be L$ only auctions. This L$ cost is at the current exchange rate for purchasing L$ with US$. I see no problem with this being turned over to a L$ auction.

2) the rest of the items are supposed to be misc land that was released back to the lindens and is up for resale. Now why is it that some of these are on auction in L$, and then there are others going for US$? I mean come on, do we really need to pay in US$ for a 9KSqm plot? At USD$143 its only L$40,849 at the current exchange rate! If LL needs a statistical currency evaluation calculator to determin what the starting bid should be in L$ as opposed to US$, I can make them one. Hell I can put it in world!

So can anyone see any real explination as to why we must have these auctions in US$ rather than L$?
Lets do some calculations real quick. Say these auctions we see here were to all end right now at their current prices.

US$ auctions total: $9,155 which equates to L$2,607,222
L$ auctions total: $67,560 which equates to US$236.40

Auction totals = US$9,391.40 OR L$2,674,123
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Ok, now LL can take the US$9391.40 and be happy with it, or lets take a look at what it does to the currency exchange:

As I write this, 2.6mil L$ covers the exchange rates from 284 through 287 per 1US$
This clears the L$ for sale and increases the L$ value by a whole 4 points as the L$ value increases to 283.
Now as the value of the L$ increases durring the purchases, LL will actually be getting more US$ for the land sale, as the buyer is paying for an increased L$ value which in turn will raise the value of the land itself.
Please feel free to correct any of my calculation errors. I did this quickly. But you can see the immediate impact this would have on the L$ value. any questions?

I was on-board w/ ya there for a minute Mr. Prototype -- but then Kazanture Aleixandre pointed out the reason why it won't happen.


The auctions that sell for US$9,391.40 would put that amount of cash directly into Linden Labs' pockets. Thus allowing them to purchase 9 new servers, or to pay the salaries of 2 employees (for the month of march.)

However if the land is sold for Linden, then Linden Labs gets zero money. Well not quite zero, but only about 3% of it (or about $281.74.) Why you might ask? Because when you purchase Linden off the Lindex those monies go to other account holders, not to Linden Labs. And if you pay Linden to Linden Labs, it's a sink and the money disapears -- it doesn't generate any funds for Linden Labs...

Well, unless of course Linden Labs put the money that came in from the auctions, back out on to the Lindex to be sold at the target exchange rate. But then Linden Labs would only ever recoup that money if the Lindex at rates below the target exchange rate were to completely run out (which with the weekly stipends is highly unlikely.)

And if your wondering where I got the 3% from, it's the fee associated with cashing out Linden to USD.

I see the point your making, and I agree. But still, what did LL do before they started the exchange? I can see selling the whole sims for US$, but selling reclaimed property for US$ as well? thats a little overboard.

So here is how it is... LL wants to add another sim. they do as they do now, and sell an entire sim "STARTING BID" US$1,000.00 to a land baron. That right there just bought the server. Now they are paying US$200/month tier on that one sim. They turn around and section it off, and sell it to other people. There is LL's cost of the server. The US#200/month in tier per sim is supposed to be what they use to pay their programmers and staff. How many sims do we have on the grid? Private sims are a guaranteed US$200/month tier payment per sim, as there is only one owner, and they have to pay the tier for the entire sim.

So if we say "go ahead and sell off entire sims for US$, but anything under a full sim, auction at L$." We should be good right? That will create a small sink to make some L$ dissapear. Also as I see in other threads, for the stipends, why is LL creating L$ to hand out in stipends rather than buying it from the exchange? There is another sink to make the L$ dissapear. We just stop making money for stipends. A SL federal reserve where LL can make money and sell it for US$ back into the economy would help.

I guess all I have left to say is that LL has an "economist" now, but I think he just sitting around playing video games other than SL, because I have seen nothing to suggest that an economist even exists at LL.

Telling people about stable L$ and that L$250 would be exchange target makes them invest, buy land at auctions etc.. Letting L$ then drop to L$300 and below is then most effective way to ruin their profits or even make them take the loss. Anyway, I still firmly believe that L$ will recover to L$250. Everything else would simply not fit with my trust in Philip as the very ethical person. What we see is certainly just some temporary short term thing. Philip always keep his word.

well anshe, I know you sell your own L$ on your web site, but looking at the exchange rate history on the Lindex, it only touched 250 for a short time, and has been steadily climbing ever since! So when do you think it will drop again, or will it ever drop back to 250? As long as people can sell at whatever price they want just to cash out quickly, I highly doubt we will ever see 250 again, or even stabalize for that matter. Anshe?

I've calibrated a model based on the LindeX data that Lawrence posted a couple of weeks ago. Given that information, it is *far* more likely that the exchange rate will hit L$320/US$ in the next four months than it is to hit L$250/US$ unless something *drastic* is done to shake things up. My numbers are based on the observed trending (excluding jumps like the one we've seen over the past couple of days) and random motions. Personally, I trust mathematics far more than I trust them to push things back to a value that they now claim was never really given...

If Vasudha is lurking here I'd love to hear whether there are any predictive econometric models being developed internally right now, and whether my numbers are consistent with hers.