American Bankers Association Cals for Regulation of FarmVille’s Virtual Currency

It was only a matter of time before the banking industry began to ask for regulation of "social currency" and "virtual currency" as "real money" transactions are regulated.

In a letter to the Consumer Financial Protection Bureau, the American Bankers Association has asked the new Consumer Financial Protection Bureau to consider regulating virtual currencies, like those used on FarmVille and Second Life.

“We understand that in some instances virtual currencies, which were initially developed to help individuals manage virtual credits earned through online games, have also been used to pay developers of applications, and their use can be expected to expand even further,” the ABA wrote.

The move was highly predictable, and eventually, as use of social currencies and virtual currencies become mainstream, those calls for regulation will grow louder. It is hard to argue that social currency and virtual currency will not wind up more regulated than today.

Bankers want regulation of FarmVille’s "Virtual Currency"

American Express Buys Gaming Payment Provider

American Express has spent $30 million to buy Sometrics, a virtual currency company that works with social game providers including BigPoint, Nexon and OMGPOP.

The Sometrics platform will be integrated into Amex Serve, the credit card company's recently launched, PayPal-like online and mobile payment system. This integration will eventually allow Serve users to "purchase virtual currency for hundreds of games," and participate in loyalty programs from various merchants.

American Express also offers users of its Membership Rewards program to redeem their points for virtual currency and goods in Zynga's social games.

The long-running Membership Rewards program has previously allowed users to earn points when they use their American Express cards for purchases, then exchange those points for bonuses like free flights, electronics, gift cards, and more. Virtual currency

In an agreement that the two companies call "an industry first", American Express and Zynga have partnered to provide exclusive virtual goods (Amex Outdoor Fountain), physical game cards, and virtual game cards for Zynga titles to Membership Rewards participants.

Those game cards will be available in a variety of amounts and can be used to buy virtual goods in Zynga's popular Facebook releases like FarmVille, FrontierVille, PetVille, and Cafe World.

American Express also offers game-specific prepaid cards. Right now, one might argue that American Express can make a business out of allowing users to buy virtual game credits with real currency. But it is hard not to envision circumstances under which Amex might like to have the ability to operate a "cash in, cash out" virtual currency model as well.

American Express Buys Gaming Payment Provider Sometrics

Virtual Currency for Virtual Goods is a Start

What comes next might be much more interesting, namely use of virtual currency in an application that might become a medium of value and exchange outside an application.

Virtual Currency in Buenos Aires

Javier Goglino is an engineer. He created a bartering system, christened “Proyecto Mutuo,”or“Mutual Project,” in his community of Martínez, a Buenos Aires suburb.

Mutual Project is a system in which members can exchange goods and services instead of money. Each member of the community has the option to offer a service or goods in exchange for “merits,” which later help them to acquire new goods and services. The merits register virtually in the participants’ accounts.

Mutual Project already has 79 members, from translators and web designers to musicians and plumbers. It fulfills an average of 14 transactions per month, with peaks of up to 30. Members exchange about 1,400 merits per month, with peaks of up to 3,000 merits.

Social Currency Systems Emerge to Supplement Money in Argentina

What is Money?

What is money, or currency? According to Bitcoin, money is any object, or any sort of record, accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. In Bitcoin's case, "money" is a peer-to-peer exchange of value using a "Bitcoin," with no use of any central banking institution. http://bitcoin.org/

When the virtual currency bitcoin was released, in January 2009, it appeared to be an interesting way for people to trade among themselves in a secure, low-cost, and private fashion. Cryptocurrency

The Bitcoin network, designed by an unknown programmer with the handle "Satoshi ­Nakamoto," used a decentralized peer-to-peer system to verify transactions, which meant that people could exchange goods and services electronically, and anonymously, without having to rely on third parties like banks.

Its medium of exchange, the Bitcoin, was an invented currency that people could earn—or, in Bitcoin's jargon, "mine"—by lending their computers' resources to service the needs of the Bitcoin network. Once in existence, bitcoins could also be bought and sold for dollars or other currencies on online exchanges.

For small person to person transactions, there typically are no fees, thought complicated transactions might require some amount. Transaction_fees. But there is a problem. There are not many things a user actually can buy with a Bitcoin, transaction volume seems to be dropping, providing little incentive for real-world or digital goods merchants to accept them for payment. One take on Bitcoin

People have come to see it primarily as a way to make money. In other words, instead of being used as a currency, bitcoins are today mostly seen as (and traded as) an investment.

So just now the bitcoin boom of the past year looks not so much like the birth of a new currency as like a classic bubble. And this has created a real paradox for Bitcoin enthusiasts. The best thing for Bitcoins would be for people to stop thinking of them as an investment and start thinking of them as a currency. That probably requires the Bitcoin investing bubble to burst.

One of the reasons people seem to be hoarding Bitcoins is that there is a firm limit of 21 million Bitcoins in total, and the number of coins cannot be increased. That means Bitcoin value can fluctuate based on market demand, but cannot be bebased by "printing more Bitcoins." Controlled Supply

Bitcoin might wind up being an interesting experiment. Other similar systems might emerge. It appears almost certain that regulatory opposition from national governments will be an issue if any of the systems start to get serious traction. There are legitimate concerns about money laundering, criminal activity and tax evasion, for example.

So it is not likely "virtual currency" in the sense of a medium of exchange that supplements or competes with other existing currencies, is going to escape scrutiny by regulatory and governmental agencies. But it is interesting.

Right now, there is more interest in "captive" forms of value in the form of points, tokens or other "virtual" stores of value used within closed communities, and often for use within games such as Farmville. But as those activities grow, there is bound to be growing interest in virtual currencies that actually can be exchanged for "real world" currencies.