Wednesday, January 23, 2008

Banking in another Life

Something interesting is happening in the parallel universe of Second Life, the popular on-line game. It seems that the avatars (characters representing the real players) are facing a banking crisis. An article on the front page of The Wall Street Journal today chronicled how players were faced with a major liquidity crisis in the virtual world, and how the creators have had to intervene, closing down banks that were no longer solvent. One hopes that they also create some financial regulatory structure, although it sounds like much of what was going on in Second Life was not far removed from what the U.S. experienced in the "wildcat banking" era of the 19th century.

Who knows, players may even move to demand a 100% reserve system, essentially turning the virtual banks into virtual warehouses. If they do, they will need to diminish their expectations. I doubt any financial institution can provide much in the way of return if not allowed to invest the deposits. (However, it does sound like some of the Second Life bank presidents were not investing as much as gambling.)

However, I say this as a total outsider having never played the game, and having only heard of it a few times.

Any insights or comments out there from Second Lifers?

1 comment:

Amanda G. said...

I've never played in Second Life, but I saw that article as well. I think it will be interesting to see how the Second Life financial system looks in a couple of months. It looks like they are going to start allowing only real life banks to operate in Second Life, which is virtually the end of Second Life banking. I'll be interested to hear how avatars will invest their money now and the strain it will have on the virtual economy.