A solution for the L$ problem

Eventhough I am still a newbie (but not a newbie in the real world) and have only joined this community after reading the feature article in Business Week, I have detected a fundamental flaw in the way SL is setup.

In most successful economies in the real world, there is a clear seperation between those who run the government and those who run the economy. But in SL, LL functions both as the government and the central bank. There's a huge conflict of interest.

For example, in order to have a stable currency, there has to be a stable monetary supply. In the case of SL, there isn't. L$ is a currency of unlimited supply. LL can at any time issue additional L$ without any regard for the holder of the existing L$. Anytime a new user joins the community, new L$ is created. This system is inherently unstable.

I propose that LL setup a seperate non-profit institution that functions as the Central Bank of SL. This Central Bank should set a limit as to how large the monetary supply is and publish that number on a regular basis.

Let's suppose currently the outstanding L$ in circulation is 100mil, the Central Bank could set a Monetary Supply target of 1bil L$, there would be a Reserve of 900mil L$ (1bil-100mil). Everytime a new user joins the community, he/she will get a fixed proportion of the Reserve, instead of a fixed number of L$. In this case, there will be a constant amount of L$ in the system. As more and more user joins SL, the incentive gets smaller and smaller. If someone wants to purchase L$, he/she can either buy it from the Central Bank or the market. In either case, the Monetary system remains unchanged.

I think this should solve the current problem of L$ depreciation to a large extent. There will still be fluctuations because L$ is ultimately not backed by any real currency. But then again, USD is only backed by the US government's power to Tax as well.

To make the system even more ideal, I think that in the interest of community, SL should be run as a non-profit orgazination as well, with LL acting only as a custodian for hire. But I doubt LL will agree to this. When you buy a piece of land and pay monthly assessment, that money should go to SL for the benefit of SL, not booked as a profit for LL. It is for LL to decide whether it wants in the future, a smaller role in a Large SL or a large role in a Small SL.

---Tiger

I will repeat it here.

I signed up for 500L a week. I expect 500l a week. Not a percentage that continually goes down as more users join.

Jonas,

I just answered your question in the other forum. I guess we should consolidate all the replies. Everyone, please post in the General Discussion. Thanks.

---Tiger

OMG are yo refering to the 500L$ stipend? Seariously in the 'grand scheme' of things does $1.50 a week mean THAT much to you to watch SL go down the pan?

If the value of the L$ continues to fall at the rate it is doing because there's too much money in-world then SL will soon cease to trade.

If all the content creators get no return on the L$ to pay for land/accounts/ and in many cases their mortage and bills....'residents' will drop like flies.

Less and Less new creations, less and less interesting new concepts and ideas and in time less and less reason to log in.

Money makes the world go round....and we've lost 1/4 of the value in aprox 1 year and LL can sit on the fence all they like...ultimatly its their necks on the line long term.

Tiger,
you are not a newbie in the real world but a newbie in SL as you said.
I agree all your thoughts, but the problem is these ideas have been discussed here like 30 times in last 6 months. None of them are new. And noone will listen to you.
We suggested more detailed ideas, examples, federal reserve bank thoughts etc.
Nothing changed. Yes your post is nice. But will stay as a nice post, nothing more unfortunately

When will everybody finally see there currently is NO L$ PROBLEM?!

What you see is an accelerated economy. The value of the economy as a whole is rising spectacularly and while the L$ loses ground it doesn't do all that bad.

In Mar 05 the total money supply had a worth of ~874.000 US$, by Mar 06 it was 2.014.000 US$. Value has grown month over month and both February and March 2006 were pretty good months. If you cut too much in the money sources in this phase of the economic growth you'll simply stop the growth and push it towards a decline.

Yes as an individual who just reaps in stipend or other minor income your wealth when expressed in US$ is declining. But I'm pretty sure the large businesses are doing fine and have seen a healthy income and profit increase over time.

Kazanture:

Here's the solution I posted in General discussion. Maybe it's been talked about before.

Here's an improved way of giving out L$ to new accounts. Instead of giving out fixed amount of L$, LL can give out fixed % of the remaining reserve not in circulation.

Let's say Monetary Supply is set to be 1bil L$, and there's 100mil L$ in circulation, the reserve is 900mil. LL can set the divisor to 3.6 mil arbitrarily, then new users now will still get 250 L$ when they join. The next user will get (900mil-250)/3.6mil, which is slightly less than 250L$. Each progressive new user will get slightly less incentive. It only makes a difference when the amount of user in SL grows substantially. For example, the 1mil th user will get according to the following formula:

L$ = (a*(b-1)^P-1) / b^P

where a=original reserve (900mil)
b=artitrary divisor (3.6mil)
p=user number (1mil)

The solution is somewhere between 180 and 250. I think by the time SL get to 1mil user, LL should be very happy and there's no need to pay anyone L$ at that point to join. The point is that everyone will know L$ supply is fixed and there will be more confidence in the currency. Trading currency is all about confidence. I should know, I am in that business.

-Tiger.

btw. This is a very simplified version. But the key point is to keep the total L$ Monetary supply constant.

I agree with Blakar. The "problem" is for people who decided to sit of huge piles of money for a long time (why? *every* online "game" currency in existence has gone down in RL value!) or who commited to other business plans that can't cope with a dropping Linden. New content is not going away, no matter how bad the Linden falls. If we lose a few people who are only in SL for the money, big deal; we'll still have the rest who are here for fun.


Edited to add:

And why so much concern with the one-of payment to new users, instead of complaining about the other, on-going sources of money being added to the economy?

This doesn't make sense. You are saying just because every on line currency depreciates, then we should not try to make L$ better? How do you ever plan and invest for the future if you don't know what the cost will be?

Sooner or later LL will realize that if its biggest customers are not happy with the way this system works, it doesn't take much money for someone else to setup an alternative on-line world.

---Tiger.

Nep,

I am only offering a concept here. Since I am a newbie here, I am not exactly in tune with all the other payments out there. My main point is that Monetary supply should be kept constant and Monetary policy should be run by an indepedent body. That's all. I am sure LL can sort out how to do everything if they decide to change the big picture.

---Tiger.

Tiger,

currently your main problem is that you do not see that the economy won't grow as well if you force a stable currency.

A strong currency isn't all joy anyway. This is even true for RL currencies. Over the last 5 years the EUR has gained significantly on the US Dollar yet do you hear joyful European companies? No you don't because a strong EUR makes it less attractive to invest/buy/... for those holding US$ hence their sales went down.

An economy is a complex model of which the currency is just one part. If you think you can measure the economy solely based on the currency rate you're very wrong.

Blakar,

You are right. An appreciating currency is also a problem, as I just stated in another post regarding the Gold standard. What I am trying to say is we need a stable currency where supply and demand is balanced. Where people could make decisions for the long term.

I have learned after 10 years of trading the markets that there's always a trade off. Everything you do in life has good and bad side effects. But as I can see clearly from this forum, the problem SL people have right now is about a depreciating currency.

Hear, hear!

No. The main problems most of us have are:

An unstable currency - but we're an unstable sort of economy too, with huge changes in population compared to any RL situation for example - and population does affect RL economies too.
People pushing amounts for sale miles away from the trading rate

What you see in this forum is a small group of strongly opinionated individuals - and even among them you can't find consensus as to the problem and the solution.

Welcome... Help us combat the Socialists who believe they can
print money out the wazoo without it impacting the economic
health of the economy....

Second Life is printing new money 4x faster than it destroys
old money. Second Life will soon be renamed, (Bolivia-1985).

The numbers are fictional but I'm sure you'll get my point:
Imagine you've a group of people. 10% of them thinks the currency depreciation is an issue. 90% don't really have any issue at all and feel just fine. You put them on an economy forum and after a month you come and check. Which impression will you get and why? The answer is easy: you'll think depreciation is a serious issue because those 10% will voice their concerns strongly and of the other 90% only a minority will bother to try and smack some sense into the 10%.

It's an economy, it's not driven by what's written here, it's driven by figures. Get hold of all the figures you can get, model it and ask yourself a few questions and try to figure out what would happen to the model. Upto now I've seen nothing that indicates the depreciating currency is a real threat to the SL economy. Even better, the more figures we receive the more clear it is that the economy as a whole is performing rather well.

SL's economy isn't being driven down the pan by 500L a week. 1.50? I DONT CASH OUT GENIUS, DONT ASSUME. I have confidence in teh system as is, leave it be. If you want to consilidate responses do it here on the -correct- forum.

SL won't "go down the pan".

I'd rather they reduced the stipend and increased the dwell, so that all content creators benefitted, but either way it's the stipend that feeds most of the purchases that people make. Most people, even most premium accounts, don't buy Lindens... and without the stipend over 60% of Premium users and 90% of basic users (based on the latest figures) wouldn't be spending any money on content.
The flow of money makes the world go round. In RL that flow is created by having businesses pay employees who become consumers who pay businesses. In SL that flow is created by businesses paying LL "inflation tax" hidden in the lowering exchange rate that LL pays to account holders who buy things from businesses.

Argent,

If what you say is true, that without stipend, no one will buy anything in SL, then the SL economy is seriously broken. What you are saying is that you will only buy stuff in SL if it's free. I personally hope and don't think that is the case. If it is, we might as well pack up and move on.

---Tiger.

Blakar,

It's not the number of people that matters, it's the number of L$ they hold. When you have the most successful business in SL publicly complaining about the depreciating currency, there is a problem. You may say it's not fair, but nothing is in the real world. Who do you think will have a bigger impact in the real world, Microsoft or the corner deli?

---Tiger.

Seems to work just fine for the British.

I think the real thing here is that all the Neo-cons are hacked off because people get pay in Second Life each week. They feel its welfare its not its a written contract join and the Lindens pay you so many lindens a week

Tiger, unless you know how much L$ the complainers hold you've no idea on whether it is relevant or not. You're just guessing they hold a significant amount. Sure Anshe complained but did you do the math on her solution? It would've meant economical suicide for her. Those that complain look at it onesided. They expect to see their income increase when the L$ rises but never wonder if the means to get the L$ down won't severely cut into their volume.

In the end they shouldn't have any influence at all simply because their concerns are mostly unfounded. For me their complaints are valid if they are backed up with research. How many of those that complain have done market research so that they first know their consumers won't bail out if the proposed solutions are introduced?

Think of the cash you wouldn't have lost if you cashed out
back at L$275 when I told you this pig was going down the tubes...
Ohh well, some people just have to learn the hard way...

Not me.. I'm counting my Benjamins with style.

Ok, I'm going to break my own rule, once.

Troll, why did you bother quoting me? I have never cashed out and never taken your drivel. I haven't lost anything and there is no way anyone sane or logical, even educated insanity, could have gotten any complaint about the exchange rate from my post.

You project too much TrollBD, now take some advice from Foamy. You can find it on most of his episodes..