China outlaws virtual money for trading

Chinese government decrees virtual currency not legal tender in transactions involving real-world products and services, but allows it to be purchased by real money.
Written by Eileen Yu, Senior Contributing Editor

The Chinese government has outlawed the use of virtual money to trade for real-world products and services, marking its first formal legislation regarding online currencies.

Virtual money, however, can still be purchased using real currency, according to local authorities.

In a joint statement released earlier this week, China's Ministry of Culture and Ministry of Commerce, said: "The virtual currency, which is converted into real money at a certain exchange rate, will only be allowed to trade in virtual goods and services provided by its issuer, not real goods and services."

Apart from its use in virtual worlds such as Second Life, virtual money is also commonly traded to purchase items in online games, which in China was a market worth US$970 million in 2007. Locally developed online games contributed US$20 million in export revenues, accounting for 65 percent of the China market.

The new regulation means virtual currency accumulated via online games, for instance, can no longer be traded in for real-world money. The Chinese government also provided its first definition of virtual currency, which it said included prepaid cards used in online games.

In addition, gambling via virtual money will be a punishable act by the country's security enforcers and minors will not be allowed to purchase such currency.

The Ministry of Culture said it will beef up monitoring of illegal online acts, as well as money laundering activities using virtual credits such as QQ coins offered by Chinese Web portal, Tencent, which has 220 million registered users.

Although the country's Internet penetration rate stands at only 23 percent, China houses the world's largest online population at over 298 million Internet users. According to MasterCard, some 70 percent of the Chinese online community make online purchases.

In the Philippines, virtual money is being touted as an enabler for e-commerce and an alternative means to make online purchases.

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