The United States Federal Reserve is seriously looking into the idea of creating an official US$ virtual currency -- a move, as Politico explains, "that could shake up banks, give millions of low-income Americans access to the financial system."
Before doing that, however, the Fed might want to read this white paper memo addressed to Treasury Secretary Janet Yellen, written for the Aspen Institute's tech policy hub. It's authored by Gene Yoon, who has some important if remarkably quirky experience with virtual currency, as a lead executive with Linden Lab during Second Life's peak period of economic growth.
"I had my time managing a 'toy' digital currency back at Linden Lab," as he puts it on Twitter. "At its height, the L$ was used in over half a billion real USD worth of transactions per year. I think the US Fed would be making a mistake in moving forward with this -- the mistake is only in going Fed-first. The United States has a wonderful advantage in 'the laboratory of the states' - experimental policies can more safely be trialed at the state level."
There is, Gene tells me, a specific example of something that happened with the Second Life economy that feeds into his advice to Secretary Yellen now:
"The Linden Dollar was initially only available as a membership bonus. Pay a membership fee, get a certain amount of L$ per month. You could call this the 'Gold Standard' era of Second Life monetary policy. Soon though, we allowed (and eventually enabled) the L$ to be traded freely user-to-user at market prices. And then we began to think about seigniorage, the idea of selling our own fiat currency directly into the market.
"We debated it for a while but ultimately did it, and it became a great revenue line for us. As governments do now, we had to be careful not to issue too much or it would devalue the currency. But certain indicators, the details of which are hazy to me now, allowed us to keep a balance to the economy even with the issuance of L$ for seigniorage.
"That experience allowed me to think about money in a way that seems to be hard for many people," he says now, and there may also be a lesson for cryptocurrency enthusiasts in there too:
"Money is a social tool and a fiscal tool, it's not some kind of natural force. It is what governments say it is, and it can be designed to be much more flexible and interesting than current governments are doing or even thinking of, as far as I know. And crypto-anarchists aren't arguing for anything really, but anarchy."
Read his whole paper here or embedded below. And if it all sounds too theoretical to you, Gene Yoon is also attempting to put his experience into practice: He's now a candidate for California State Senate District.
"It's good fun," he says about being on the campaign trail. "Meeting a lot of people. It's good to see with my own eyes what politics is like.
"In a way," he adds, grinning, "Second Life prefigured many of the social changes wrought by tech - online lives, digital assets and currency, platform power. Good training for politics."
Second image from "Ginsu Linden's Finest Hour".
not to disrespect Mr Yoon but I think he might be misunderstanding what the purpose of the proposed US federal digital currency is
the purpose is not to create a token which can be traded for US dollars. There is no value difference between a US material dollar and the proposed US virtual dollar
what this proposal is about is the ability of the Fed to create credit, in addition to creating money. Is the creation of credit that has gotten US banks in a tizzy about this. And into a further tizzy as the proposal provides for a federal retail bank to be the vehicle for creating credit
Posted by: irihapeti | Thursday, June 17, 2021 at 08:26 PM