Are Linden Dollars Fungiable?

I moved this from the end of the world post to try and get a better understaning of how the in-game fiscal economy works...



So our Lindens are an Partly-fungiable Fiat Currency - underwritten be a central bank ( ie. LL. ) who guarantee the value of linden up to a certain daily limit - cap.. Actualy I'm not sure if lindens are fungiable or un-fungiable...

Any economists out there?

A good spray with disinfectant should sort out any fungi problems.

Broccoli

After reading the definition a couple times, I think the L$ must be fungiable. One L$ is 'indestinguishable' from another L$. If I pay you L$100, it does not matter which 100 L$'s I give you. Although it's an interesting concept in that I have never seen an L$. Have you? Are they paper, or coin? Do they come in different denominations?

In fact the L$, as far as I know, is a completely imaginary concept. As Linden Lab says, they are not money at all but a limited licence to access certain services.

So perhaps your definition should be modified slightly: Fungiable Fiat Pseudo Currency?

-Atashi

As I understand it:
LL claims to own everything on their servers - even if you buy it. You never own any virtual money or virtual goods in SL.

As for the payout: LL doesn't guarantee anything. Neither that the L$ has any value, nor that you will be able to sell it to other SL users (LL themselves never buy L$).

In other words, you can be a billionaire in SL without really owning a dime, and without knowing if and at what rate you might be able to exchange it for real currency. Only if you do manage to exchange L$ for US$, you receive a taxable monetary value.

LOL.. Atashi I think you mean Tangible!

It's quite confusing actually...

It seems real money eg pounds, dollars and euro etc a backed with a promise from the central bank which underwrites the value on the note with the equivalent value in a precious mineral such as gold or silver... althogh it seems there is not enough gold in the vaults now to back currency...

In our world a linden is not underwritten by anything as Atashi points out it is a "limited license to access certain services" - so in this respect t's rather like buying a gift coupon or credits to use on a mobile phone.

The issue with our "Fungiable Fiat Pseudo Currency" is that you CAN convert this back into RL money - this convertibility is the crtitical difference - alhtough as far as i can see the lindex sells your lindens to other users for RL money so one might argue that the currency is underwritten by the demand of the users

/me heads off to read up on lindex trasacions on sl website

it's "funny money."


sorry, couldn't resist! :)

Confusing, but strangely fascinating...

It is a nonexistant imaginary currency, in that you cannot 'cash out' in L$ -- in other words you can't get Linden Lab to send you a wad of L$. It exists only digitally, and to exchange it with other persons, you have to make the transaction in-world. Unlike the Dollar, Pound, Yen, or Zloty for example... you can (assuming you find someone who wants them) trade them with anyone, anywhere in the world. An Airport currency exhanger for example, probably accepts darn near anything. But they can't accept L$ -- even if they wanted to -- unless you and they both go in-world to transfer the L$ to them. Which means they would need an account, and even once they had the L$ they couldn't do anything with it but transfer it, in world, to someone else.

Even the third-party currency exchanges like SLX, AC, and Apez et al, can't accept L$ directly via their website. You have to transfer the L$ to them via an in-world mechanism.

So, even if you could spend the L$ for real-world goods or services -- and I am sure you can, somewhere -- you still have to complete the L$ part of the transaction in-world.

Thinking about this made me think of another pseudo-currency that I am sure all Canadians on the forum are very familiar with:
http://en.wikipedia.org/wiki/Canadian_Tire_money
http://www2.canadiantire.ca/CTenglish/ctmoney.html

That's a printed 'currency' which, although it is not 'legal tender', you can trade for goods and services, and not just at the retial store that issued it - a small number of other places accept it as tradable currency, including eBay. There's still a number of differences between CT 'money' and L$ but they share similarities too: Technically, they have no cash value. The bank won't take them (nor will it issue them). With a few exceptions, they are accepted nowhere but the place they are issued. The place that issues them does consider them 'like a currency' and trades in them freely, but they don't call it 'currency' and they remind you (at least in fine print) that they have no cash value (outside of some narrowly determined criteria).

Frustratingly I couldn't find any real legal definition of CT 'money'. Basically though it's a 'coupon' redeemable at its face value for products and services at the chain of stores that issued it. Otherwise there's no cash value (you can't trade them for real money). The L$ is sort of similar as a 'coupon' in the sense that in-world, you can trade them for 'products and services' but you cannot offer a wad of them them to Linden Lab and demand US$ in return. (And when you sell on the LindeX, you are selling to other residents: Supply Linden cannot buy L$.)

So I think Amy you are quite correct when you say that the L$ is underwritten only by the user-base aka Residents. If the user-base falls or loses confidence, the value of the L$ can drop or go to nothing, as there is nothing backing it other than the demand of users. I also agree with your summation that the L$ is like a coupon - it really has no cash value anywhere, outside the narrowly defined user-base who would like to spend L$ within Second Life.

Disclaimer: I'm not an economist or accountant or any kind of expert at all.

-Atashi

Thanks Atashi for clearing this up.

So it seems Lindens can be classified as a "Fungiable Fiat Currency" Rather like a digital equivalent of a canadian tyre coupon or a UK Luncheon Voucher...

Although wiki on "coupon" doesn't yield much...

Wow!, do we still have these? I remember as a child seeing the LV in a roundel in lots of London cafes. .. <cough> .. er, I mean .. I read about them somewhere!

Interestingly, paper notes are not money anyway - so a paper dollar is infact just a representation of a dollar, in the same way that a number in a piece of software code is a representation of a L$. Paper notes are basically IOU's, and to a certain extent the same can be said of a L$ - it is a promise to pay the bearer a variable amount of US$ in a sense.

But, then again, a paper note has a fixed US$ value, while a L$ doesn't - a $5 note will always be worth $5, regardless of when you spend it.

My head hurts.

Interestingly, paper notes are not money anyway - so a paper dollar is infact just a representation of a dollar, in the same way that a number in a piece of software code is a representation of a L$. Paper notes are basically IOU's, and to a certain extent the same can be said of a L$ - it is a promise to pay the bearer a variable amount of US$ in a sense.

But, then again, a paper note has a fixed US$ value, while a L$ doesn't - a $5 note will always be worth $5, regardless of when you spend it.

My head hurts.

The US is off the gold standard, right? I'm pretty sure I remember that happening, or reading about it, or something. A dollar bill reads "this note is legal tender for all debts public and private" but nowhere does it say that it actually represents something else, or is exchangeable for gold, or whatever. So IS a dollar really an IOU? If so, for what? Can I go up to the US Treasury and demand $1.00 worth of gold? No, cause we're off the gold standard.

So if an L$ is tied to the USD much like the USD used to be tied to gold... we can conceivably exchange all our L$ for USD, only not in the real world. Is L$ then also legal tender? (I mean, I know it's not... this is a hypothetical thing...LOL)

I'm still not sure we can even call the L$ a 'currency', can we?

I just looked and a US$20 bill does have the 'this note is legal tender for all debts public and private', and a C$20 bill just says 'this note is legal tender'. I don't have any UK pounds handy but I remember a long time ago reading on one that it was basicaly an IOU and you could redeem it for silver... or maybe that was my imagination. Whatever it said, I thought it was neat.

But the thing with the L$ is nobody promises to pay you anything for it... or is that what 'Fiat' meant? I forget... I don't think the L$ is 'underwritten by' anyone, going back to the fine print in the TOS that the L$ has no inheirant value and Linden Lab can cancel them at any time. Really, they only have value as long as we (residents of Second Life) all agree to pretend they do.

Now it's reminding me of a Monty Python sketch, about a building that was kept up by hypnotism...as long as the residents believed in the building, they were safe. But as soon as they started to doubt it, the whole thing collapsed....

Ah, I'm so glad it's Friday

-Atashi

First, it's spelled "fungible". No "a".

Second, $L is totally fungible, because there is absolutely no way to distinguish one $L from another $L. When you get L$10, you don't get 10 unique individual items, you simply get your $L counter incremented by 10. This is as fungible as anything could possibly be.

Another example of a fungible asset is corn stored in a grain silo. You contract with the silo owner to store so many bushels or tons or whatever of corn for say, two months, and send your trucks to his silo. Two months later you send empty trucks to pick up the corn. You are not guaranteed to get the exact same kernels of corn you dropped off; any kernels will do. That's what it means to be fungible.

In contrast, if you put things in a storage locker, when you go back later you expect the exact same things to be there. These are "non-fungible" assets.

Cheers

However, US$ floats with respect to other currencies and valued goods.

Likewise, L$1 is always worth exactly L$1, wherever you spend it in SL. And its value floats against other currencies.

The main difference is that US$ are backed by the US government, and L$ are backed by LL. The level of security is definitely different. LL could be bought by an evil billionaire and shut down, and our $L would be worthless. Likewise, the entire US economy could be brought down by some global event. Or Cheney being elected President ...

When I say "backed by LL", all I mean is that LL controls the number of $L available and permits its exchange. They don't have to back it with anything of actual value. As long as people consider $L valuable for any reason, and as long as there is a mechanism to convert between $L and other currencies, it will have a value in terms of other currencies.

(Note that it doesn't have to be an official mechanism -- if it can be converted on Ebay, that's sufficient. The mechanism simply has to work, meaning that when you buy them you get them, and they're not easy to counterfeit.)

Fungible - Yes, this one and that one, all ave the same value.

Underwritten of guarentted, not even remotely.

Currency - No.

L$ are virtual goods, you can't actually hold one. They do however have value that is decided on good old supply and demand. L$ serve the purpose of currency in the game, but can not be considered real currency. We do however sell them for currency to one another.

Of course it's currency. Is it *real* currency? Well, that's debatable. Th4e fact that it can only be exchanged inside SL limits its usefulness for purposes outside of SL, which is entirely appropriate and tends to make it a little less real.

The only guarantee is based on the fact that SL generates revenue. The SL community is a valuable asset of LL and it would lose value dramatically if $L were to plummet for some reason. While that may be sufficient for small business purposes, I certainly wouldn't want my life's savings in $L!