Beijing fears virtual money’s influence

China has issued restrictions on the use of “virtual money” from internet games, warning such currencies could threaten real-world financial stability.

The ban on using virtual money to buy “material products” is part of a wider tightening of controls that includes a renewed crackdown on the cafes where many of China's estimated 137m internet users go online.

Beijing’s move highlights the blurring boundaries between online and offline worlds. Governments and judiciaries elsewhere are also struggling to decide how to regulate online economies that have spawned multi-million dollar businesses trading virtual items and currencies for hard cash. But few view them as a threat to the world financial system.

The restrictions follow Beijing’s growing concern about the influence of currencies created by internet companies, particularly the wildly popular "QQ Coins" issued by Hong Kong-listed messaging and games provider Tencent.

Tencent's messaging system is used by an estimated two-thirds of Chinese internet users and its QQ Coins have been accepted as payment by other companies as well as sold for legal tender.

A formal notice quietly issued to officials last month by the Communist party and government departments, including the central bank, has ordered “strict differentiation between virtual exchanges and online commerce in material products”.

The notice says: “The People's Bank of China will strengthen management of the virtual currencies used in online games and will stay on the lookout for any assault by such virtual currencies on the real economic and financial order.”

Virtual money can only be used to buy virtual products and services the companies provide themselves, issuance will be limited, and users are “strictly forbidden” from trading it into legal tender for a profit, says the notice.

The curb on virtual money reflects concerns that it has been used to circumvent China's strict laws against gambling.

Tencent and other internet companies offer forums where people can play online versions of games such as mahjong using virtual money, although Tencent says it has “adjusted” its services in recent months and that they now “accord entirely with government instructions”.

China is in the throes of a campaign to “purify” the internet, and most of the content of the notice was aimed at tightening controls over the country's estimated 113,000 internet cafes. It blamed internet cafes for fostering “internet addiction”, banned approval of new ones this year and toughened penalties for those that admit minors. Crackdowns in 2002 and 2004 had a limited impact.

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