If you’re a virtual currency millionaire in China, some potentially bad news: you won’t be able to use that virtual dough to purchase goods and services in the real-world.
In an effort to stave off the ills of virtual currency gone awry, the Ministry of Culture and the Ministry of Commerce jointly announced rules that lay out the ground rules for China’s virtual economy.
The rules are pretty simple:
The virtual currency, which is converted into real money at a certain exchange
rate, will only be allowed to trade in virtual goods and services provided by
its issuer, not real goods and services.
According to the Wall Street Journal, the definition of virtual currency adopted by Chinese officials “includes prepaid game cards, game currencies and game points…tools and weapons used to play games online are not included“.
The rules state that virtual currency shall only be used to purchase goods and services from the company that issued the virtual currency in the first place. It also provides some consumer protections; if a service is terminated, virtual currency issuers are supposed to refund the unused portion.
With nearly 300m internet users and billions of yuan in virtual currency traded last year, Chinese authorities believe they have good reason to regulate what is a nascent yet rapidly-growing market. Citing gambling and money laundering as problem areas, the Ministry of Commerce website noted Chinese internet expert Cui Ran’s statement that the government’s goal is to “nip illegal online activities in the bud“. Ran also stated that these new regulations will help prevent virtual currency markets from eventually having a negative impact on real financial markets, which could become more likely over time due to “increasing conversions between virtual and real money“.
So how will this affect Chinese companies that rely on virtual currency?
Tencent, Inc. is a publicly-traded Chinese internet company that generates over $1bn/year in revenue, much of it from virtual goods and QQ coins, the virtual currency that is used to purchase those virtual goods. It apparently supports the regulation, as do other companies in the space. One could, however, argue that these companies have little choice but to go along.
The question now is whether other countries will follow China’s lead. While it’s unclear whether such regulations are really necessary and whether they’ll be successful in practice, I think the idea that consumer protections should exist for virtual economies is a good one and Chinese authorities may prove to be wise for considering the impact of virtual currency conversions.
Photo credit: Philip Jägenstedt via Flickr.