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MMO Economies - Hyperinflation, Reserve Currencies & You! - Extra Credits - YouTube
Channel: Extra Credits
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MMOs suffer from a strange problem,
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at least in a real world economic sense.
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Everybody is printing money all the time.
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For years, every massive multiplayer game
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has struggled with this.
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And as any old school MMO player will tell you,
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the results were as devastating as they
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often were hilarious. But of late, games
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have stolen a very real world economic solution.
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We've covered this a bit before,
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but basically every time you kill a
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monster in an MMO it drops money or a
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piece of loot that a vendor can
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conveniently convert to money for you.
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This money doesn't come from anywhere.
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There's not a limited supply of it at all.
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Rather, it's just magically created every
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time you win a fight. And with hundreds
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of thousands of players killing monsters
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24 hours a day, 365 days a year
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that's a lot of money being constantly
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added to the economy. Imagine what this
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would do to a real world economy.
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Imagine if rather than your central bank
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having the exclusive right to print
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money and keeping careful tabs on how
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much money is out there, everybody was
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just printing money all the time.
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You would hit hyperinflation pretty fast
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The value of the currency would plummet
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and the loaf of bread that costs five
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dollars one day would cost 50 the next week.
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And then 5,000. And then people
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would just stop accepting money for
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bread altogether. Your currency would be
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effectively worthless. And that is
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exactly what happens in most MMOs.
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In Asheron's Call, the in-game currency
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became so inflated that shards were used
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as money. In Diablo 2, stones of Jordan
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rapidly replaced gold. And in Gaia Online,
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the currency became so worthless that
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the company started offering to donate
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two hundred and fifty dollars to charity
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every time the players threw away 15
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trillion gold. Players just abandoned the
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designated currency and chose a
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different, more restricted currency
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because they could no longer trust the
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initial game currency to retain any
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value at all. And this has a devastating
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impact on these games.
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It makes the game less approachable for
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new players. It means that returning
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players come back to a now worthless
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bank account.
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It makes it harder for players to
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exchange goods, and in some poorly
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supported MMOs, it's even rendered the
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in-game auction house unusable.
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So of course, there were all sorts of ways
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we always used to try to design around this.
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We would put money sinks in the game.
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Things like auction house fees,
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vendor-only consumable items that were
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practically necessary to play. Guild dues,
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or even property tax for owning in-game
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real estate. Those sinks were designed to
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remove currency from the game. When you
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paid for any of those items or services,
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the money you paid with simply vanished,
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which theoretically would have a
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deflationary effect. But as we all know
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when it comes to MMO players there is
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practically no money sink you can build
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that's going to exceed how much people
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are willing to grind. And even if you
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could get close,
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well that could hurt your economy, too.
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And honestly, it might make your game less
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engaging to play if the player feels
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like they're spending all of their time
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just paying fees. It's not really why we
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play games. But lately it seems like
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designers have discovered another solution.
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A reserve currency. In the real
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world, almost every nation holds onto a
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bunch of currency from other countries
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to serve as a reserve currency.
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This reserve currency is used for
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international transactions, but far more
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importantly to us, it's used to anchor
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the local currency. Because, after all, if
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you have 500 billion dollars in the bank
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and you tell everybody that they can
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trade 50 of your currency for one u.s.
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dollar
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well then the least your currency is
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worth is 2 cents. It can't go below that
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so long as you've got some of your
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reserve currency left. If your currency
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starts to inflate, then people start to
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trade in your local money for the
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reserve currency, effectively creating a
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floor for what your currency is worth so
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long as you still have a supply of the
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reserve currency. So how does this work
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in MMOs? Well of late, many MMOs have
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started to allow players to buy things
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of real-world value with in-game
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currency, like Plex in EVE Online.
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Many of the free-to-play MMOs have gone one step
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even further and let players buy their
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microtransaction currency -- the currency
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that has to be bought with real money --
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from other players for currency earned
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in game. By tying the in-game currency to
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real world currency, which has real value,
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the in-game currency now can't lose all
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of its value. But that alone didn't end
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up being enough to prevent
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hyperinflation in a lot of these games,
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so two other aspects, somewhat lifted
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from how real world reserve currencies work,
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were put into place in order to overcome
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the infinite money printing that MMOs
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naturally engage in. The first is
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illiquidity. In the real world, reserve
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currencies can't really be traded among
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the local populace. Like if you go to
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China, even though the Chinese keep huge
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amounts of US dollars as reserve
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currency, you can't really simply trade
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US dollars for things on the street.
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You usually need to convert your money into
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yuan first. And while clearly this is
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not a hundred percent true in the real
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world because the real world basically
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breaks every rule at some point, you can
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make it a hundred percent true in games
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because you set the rules of that world.
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You can prevent players from trading the
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purchased currency. Players can convert
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their earned currency to purchased
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currency, but that currency can't then be
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traded to players except by converting
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it back to earn currency through the
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same system. The purchased currency can
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only ever be spent. You know what, this
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would actually probably be easier to
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follow if I had named these currencies
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and gave some examples or something.
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So, let's call the currency you earn
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in-game by killing monsters and stuff
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silver pieces, and the currency that
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you've gotta pay real money for, those
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are diamonds. In our hypothetical game,
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you can use the game's currency exchange
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to, let's say, pay 10,000 silver pieces to
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buy a hundred diamonds.
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Once you've done that, you either have to
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spend those 100 diamonds in the in-game
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store, thereby permanently removing
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those diamonds from the economy, or you
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can just sell the diamonds to somebody
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else for 10,000 silver to get your money back.
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You can't ever use diamonds to buy
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things from players. Like, you can't offer
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to buy somebody's Epic Sword of
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Awesomeness using your newly acquired
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diamonds because if you could do that,
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diamonds would just become the new
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currency and people would abandon silver
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entirely. But, because there's a whole
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host of items that you can't buy with
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diamonds, even players with a lot of
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money to spend on the game still need to
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earn that in-game silver, and thus will
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trade their diamonds for it.
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In our real-world analog, buying something with
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diamonds is basically like buying
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something from a foreign market.
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That money leaves the economy, but in return
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you get a good or a service that you
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couldn't purchase locally. But clearly in
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this scenario, if silver is added to the
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world faster than diamonds, the price of
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silver to diamonds will inflate.
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Creating a reserve currency might
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help you avoid the problem of silver
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becoming totally worthless, but you
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haven't yet prevented crippling inflation.
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To do that, you need to take
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one more step. And that is setting a
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maximum limit on how much a diamond can cost.
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Back when we used the gold standard
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in the real world which we talked about
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a little bit in this Extra History
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series on paper money, and gold was used
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as the reserve currency internationally,
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nations would just set a fixed price for
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how much an ounce of gold was worth.
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They would say, alright
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the government says you can always trade
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23 US dollars for an ounce of gold.
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And all of a sudden, the very least a dollar
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could be worth. Or put another way, the
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most it could inflate to is 120 third of
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an ounce of gold. Now in the real world,
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there's all sorts of problems and
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complications with this that involve the
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limit on the gold supply and how hard it
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is to respond to economic shocks when
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you have declared your currency worth a
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certain amount of gold, but we don't have
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to deal with any of that in games. And
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this form of currency reserve was really
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really good at one thing: keeping
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inflation down. Now, because money is
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still being perpetually printed in your
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game, you are still gonna need money
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sinks. And even with those, because there
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are items that simply can't be bought
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with diamonds, some inflation is going to
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occur. But, with these systems in place,
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instead of hitting hyperinflation, you'll
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get something much closer to the
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rational real-world inflation that comes
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with an expanding economy. And while
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there are a million other complexities
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with reserve currencies that I've not
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been able to even scratch the surface of
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in this 10-minute video, and because
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there's other weirdness with MMOs that
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throws a bit of a wrench into the whole
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thing,
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this stuff isn't a magic bullet. It's not
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a perfect solution. But by stealing one
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of the quintessential economic tools
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that makes our real-world run, we are one
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huge step closer to solving one of the
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oldest problems in MMO design.
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See you next time!
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