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Economic Spotlight: L$ Exchange Rate in Q2 2010

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Ram Linden

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The L$/US$ exchange rate briefly experienced fluctuations for approximately one week in June. At the time, we interpreted this as being due to a number of factors, including uncertainty over our recent reorganization. Further research has shown  this was also caused by the effect of merging Residents’ inworld and XStreet SL account balances in late March. Previously, Residents had two separate balances: one for inworld transactions, and one for XStreet SL transactions. Merging those balances provided a more convenient, efficient way for Residents to maintain and spend their L$ balance. Residents are no longer keeping a higher than historical average L$ balance across their two accounts and this process of reducing their  total balances caused new L$ purchases to temporarily be lower while  these “extra” L$ were used and/or added to the selling volume if the L$ were taken out of the economy. At this time, total Resident L$ balances have stabilized and are no longer falling.

exchange rate, june.png

Despite this temporary uncertainty and related market impact that caused sell volumes to briefly spike beyond purchase demand during one week, trading activity and the exchange rate have since returned to near historical levels.

The L$ exchange rate is a floating rate that can change based on supply and demand. Although Linden Lab employs a variety of methods including  sinks, sources, and selling L$ from time to time, and tries to maintain a relatively stable money supply and exchange rate, we are committed to allowing the economy to fluctuate based on its own market forces. As in the real-world economy, these market forces can sometimes result in changes that can affect businesses positively or negatively in Second Life.

For more information on the Second Life economy in the second quarter, read today’s blog post.

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You left out:

Oh, and by the way, all those Linden Dollars you residents still hold  are now worth two thirds of a million US$ less than before.

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@ Daniel: True, each $L is worth slightly less at the moment... but this does not necessarily reflect a true loss of value for individual users. Not all $L users currently hold saw any loss of value, only the $L people held during the period of decline received this loss.

If you sold your $L before the slight decline & then after the decline reinvested in $L, there is no loss of value for the trader... and any consumer is able to buy more inworld goods with their $L since they get more $L on the dollar : )

Anyways, demand for $L looks to be strengthening again. So I am expecting another period of volatility sometime soon, where the $L will regain that small loss.

Yay for a lively market!

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Also, thank you LL for the increased transparency & for doing all the had work involved in gathering the data, shaping it into a form that is understandable & sharing it with us all.

The effort is very appreciated : )

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so a change at XstreetSL in march (/me guess its this) helps to create 1.5 month later the sharp and significant spike in june?

/me wonders

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