"The goal is to make Facebook Credits into an international virtual currency"

Here’s that quote again: “The goal is to make Facebook Credits into an international virtual currency”
The quote comes from a VentureBeat article summarising a talk from Facebook’s Deborah Liu at the Virtual Goods Summit in San Francisco, in which she discussed Facebook teaming up with virtual currency services provider Playspan in order to ramp up sales of Facebook Credits.  Facebook Credits are an increasingly healthy source of revenue for Facebook – consumers pay real money for Credits and use those Credits in virtual goods transactions, e.g. in games like Farmville, with Facebook deducting a 30% transaction fee.

All good so far.  But it was this bit of the article which got me:

“Liu said the goal is to make Facebook Credits into an international virtual currency. The analogy is Europe’s euro, the currency whose introduction resulted in the broadening of trade beyond country borders. Roughly 70 percent of Facebook’s users are outside the U.S.”

Imagine the future.  You go on to the web or your smartphone Facebook app and buy some Facebook Credits.  What do you do with them?  Well, remember, Facebook Credits are an “international virtual currency” now.  So, there’s lots you could do:

  • Buy some virtual goods in Farmville 2 from Zynga, or maybe buy them from another player directly, or maybe even through a second hand virtual goods market.
  • Buy some groceries from Tesco or Walmart and have them sent home.
  • Send the Facebook Credits to your friend or family abroad, or maybe have them converted into the local currency first before you send them.
  • Put them in a savings account or perhaps purchase a bond or life insurance with them.

I have no doubt that we will see something like this happen in the coming years.  Clearly, whether it is actually Facebook Credits that does it, and whether it goes as far as the above examples, is another question – but something like this is going to happen, is already happening in fact.  And I also want to emphasise that, as a gamer/techy/lawyer, this is really exciting.  BUT.  BUTthis is going to raise some really critical legal, financial and cultural issues:

  • As soon as you have a true “international virtual currency“, the banking laws of every country in which it is sold will jump on it.  There will be money-laundering, consumer protection, potentially even capital adequacy requirements and many more.  How will Facebook deal with all that very heavy compliance?
  • A true virtual currency will only gain widespread acceptance when it becomes ‘cash out’, i.e. when you can take become able to take cash out of virtual goods as well as put them in.  IF that happens it will fundamentally change how Facebook operates – and introduce a whole further tranche of legal issues.  For a start, what if you have to pay tax on your virtual currency?  I cannot emphasise how critical the ‘cash out’ issue is going to be in the future.
  • How long before regulators and politicians start taking a really hard look at Facebook Credits?  Example: what happens if the global anti-trust/competition regulators decide that they need to be cut down to size?
  • What about all the macro and micro economic implications?  How will Facebook deal with currency fluctuations, inflation and deflation and so forth?  How do you deal with consumers in the US having to pay much more or much less in real terms than Chinese or European consumers because of what’s happening in the currency markets?  What happens when there is future market chaos and investors start buying up Facebook credits as a safe haven?
  • How will Facebook get people comfortable culturally with the interaction between ‘real’ and virtual currencies?

I could go on, but there’s enough meaty issues there already.  Longtime readers will know I’ve already written previously about the legal challenges that the rise of virtual goods/currency are presenting, and I think it’s time I started thinking a little more deeply about how these kinds of issues could be resolved.  In the meantime, what do you think readers?  Let me know in the usual ways…

Image credit: Mashable/Facebook

Follow us at http://www.twitter.com/gamerlaw or subscribe to our weekly email newsletter here

3 comments

  1. Its cool stuff… nice idea, for that what i came here… its bitty cool… m gonna do that…:D

  2. …not to mention the eventual bail-out. But seriously, in EU regulatory terms the issue will be when regulators decide FB credits are no longer used within a "limited network". At that point they'll fall within the scope of the E-money Directive, and the issuing FB entity need to be authorised as an E-money institution and comply with the Payment Services Directive. That rubber band must be stretched pretty tight by now… I also posted something on "open loop time banks" which might be of interest: http://sdj-pragmatist.blogspot.com/2011/02/open-loop-time-banks.html

Comments are closed.