Wednesday, March 14, 2007

Although the Chinese government recently announced a purifying moratorium on
internet cafes - the same week the Communist Youth League penned a contract
with leading gaming developer Playtech to provide software for large scale
internet-based gambling tournaments - the cadres in Beijing know that
internet cafes are only an embodiment of something much larger and more
threatening, according to the Financial Times. The government took its
assault on the internet gaming world a step further this week with an
announcement that it perceives the explosion in virtual currencies used in a
variety of online gaming forums - everything from Second Life to World of
Warfare to virtual poker rooms - as a serious threat to its national
security. "The People's Bank of China will strengthen management of the
virtual currencies used in online games and will stay on the lookout for any
assault by such virtual currencies on the real economic and financial
order," the government statement read. Such currencies have been used in the
United States to circumvent the tentacles of the Unlawful Internet Gambling
Enforcement Act (UIGEA), which prohibit American financial institutions from
processing transactions for internet gambling companies. The Chinese are
particularly concerned with the wildly popular "QQ Coins", issued by Hong
Kong messaging and game provider Tencent, which are used by two thirds of
Chinese internet users and which can now be traded or accepted as currency
by third party companies. Beijing clearly understands that any kind of
financial instrument outside of its direct control can impact the wider
economy, and that just because something is virtual doesn't mean it can't
have economic value to real people. The Chinese invented paper money, and
paper money itself is a kind of virtual currency, symbolic of the economic
clout of its issuer. Aside from the fact that it isn't immediately clear
what differentiates, say, Linden Dollars from easily convertible airline
miles, and why one should be prohibited and not the other, the practical
issues of prohibition could well be more trouble than they are worth.
Unfortunately for the Chinese (and the Treasury Department), human beings
are capable of investing anything with value, be it shells, polished stones,
internet bandwidth, or paper. Previous crackdowns in 2002 and 2004 haven't
seemed to do much. As their slippery fingered brethren at the American
Department of Justice could tell them, it's a lot easier to say you're going
to slay the internet dragon than to do so.