China's virtual currency threatens
the yuan By Kent Ewing
HONG KONG - As if Chinese leaders did not
have enough of a headache trying to manage the
country's rising but still undervalued currency in
the testy world of international trade, now the
growing popularity of virtual money enters the
already complex equation.
The so-called
"QQ" coin - issued by Tencent, China's largest
instant-messaging service provider - has become so
popular that the country's central bank is worried
that it could affect the value
of the yuan. Li Chao, spokesman
and director of the General Office of the People's
Bank of China (PBOC), has expressed his concern in
the Chinese media and announced that the central
bank will draft regulations next year governing
virtual transactions.
Public prosecutor
Yang Tao issued this warning: "The QQ coin is
challenging the status of the renminbi [yuan] as
the only legitimate currency in China." In an
article published recently in the Nanfang Daily,
the prosecutor wrote that the central government
would act to "limit the application of QQ coins"
and assure that their use is restricted to the
virtual world.
Tencent argues that Yang
and the PBOC are overreacting, and some Internet
analysts agree. Nevertheless, there is no question
that the virtual-currency trend is catching on in
China, and the endgame is unclear.
Tencent
boasts more than 220 million users, and its QQ
coins can be purchased with a bank, telephone or
"QQ" card at an official price of 1 yuan (12.5
cents) per coin. Originally, the virtual coins
were designed to pay for Tencent services such as
electronic greeting cards, online games and
anti-virus software. Now, however, they have
reportedly developed into an alternative currency
traded on the black market and used for other,
less savory services, such as online gambling and
private chats with "QQ girls".
Xinhua,
China's official news agency, reports cases of
people earning thousands of yuan per month trading
in QQ coins, which they can win by playing online
QQ games that pay out one coin for every 10,000
points earned. Xinhua also reports that the
operators of some Internet forums are now paid in
QQ coins rather than the official currency. And
there is evidence that other online sites not
associated with Tencent also accept QQ coins.
In addition, unofficial online vendors
have sprung up to take advantage of QQ fever. They
accumulate large numbers of coins by hiring
professional game players to win them and also
through gambling ploys, inside connections at
entertainment companies and even by hacking into
user accounts and simply stealing them. Then they
sell the virtual currency below its official
value, at a rate of 0.4-0.8 yuan per coin.
Tencent introduced the coins in 2002 as
tokens to pay solely for its online services and
disavows any connection with this illicit trade
"We do not have a mechanism to transfer
unused QQ coins back to the yuan," the company
said in a statement, "and we do not support
transactions made with QQ coins via dubious
means."
While there is no reason to doubt
the Tencent statement, it is also true that the
booming business in third-party sales of QQ coins
clearly benefits the company. As there is an
official premium on the number of available coins,
a certain number of them are regularly removed
from circulation, ensuring that new coins are
always in demand from Tencent.
Tencent's
service operates much like MSN Messenger, except
that it is part of a virtual economy whose
currency is the QQ coin. Its users tend to be
high-school or university students who spend an
increasing amount of their time in cyberspace. And
they are not just playing games and listening to
their favorite music; many are also living
alternative lives that can lead to the purchase of
anything from virtual clothes to virtual pets to
virtual automobiles.
A small purchase -
say, a pair of virtual Nike sneakers - may not
cost much, but a whole wardrobe can add up. And
don't forget the decorations for your chat avatar
(a digital representation of a user in virtual
reality) - that, too, will cost you.
QQ
coins also allow Tencent users to flout China's
tough anti-gambling laws - which, despite more
than 50 years on the books, have largely failed to
curb the Chinese desire to place a bet. The
company's game platform offers mahjong and a
variety of card games with betting options, and
Tencent takes a 10% cut from all bets.
In
the end, it's hard to know whether Tencent will
have to face the regulator's music on the moral or
the economic question or both. But it's never a
good sign when the central bank lines you up in
its sights.
The PBOC has vowed to keep a
sharp eye on the QQ phenomenon lest the coins
enter general circulation, influencing the already
internationally sensitive value of the yuan. At
present, sales in virtual money are estimated to
add up to billions of yuan annually and to be
increasing 15-20% each year.
Some US
lawmakers - including Nancy Pelosi, soon to become
Speaker of the House of Representatives for the
110th Congress - have accused Beijing of currency
manipulation to keep the yuan at an artificially
low rate against the US dollar and other
currencies. They threaten trade sanctions unless
China acts to allow the yuan's value to appreciate
more rapidly.
The yuan has appreciated
3.56% since it was revalued by 2.1% in July last
year, and the currency reached a post-revaluation
high of 7.8313 to the dollar last week. But US
Treasury Secretary Henry Paulson, who is to visit
Beijing this month, is pushing for a much faster
rate of appreciation.
So far, virtual
currency has had no perceptible impact on the
yuan. But the central bank is worried about a
future in which the popularity of virtual money
grows to the point where it jumps from virtual to
real goods.
But this possible scenario has
drawn skepticism from many analysts - primarily
because true convertibility between the yuan and
the QQ coin would expose Tencent to enormous
financial risks. It's unlikely the Internet
company will want to embrace the role of the
Virtual Bank of China.
In the end, it's
more likely to be the morality police than the
financial regulators who come knocking at
Tencent's door.
Kent Ewing is a
teacher and writer at Hong Kong International
School. He can be reached at[email protected]
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