That is how Merriam-Websters defines “currency” and provides an interesting framework for understanding the issues of currency in Second Life. Beyond currency, we need to think about what it is based on and how it is transmitted, all of this will can help put the latest decision by Linden Lab about banking into perspective.

In the United States, it is the Office of the Comptroller of the Currency (OCC), part of the U.S. Treasury Department, which is responsible for ‘Ensuring a Safe and Sound National Banking System for All Americans’.

The OCC has a page pointing to their Electronic Banking Guidance, including their Opinions and Letters on Permissible Electronic Banking Activities.

Their 2002 News Release, OCC Issues Final Rule on Electronic Banking, states

The OCC charters, regulates and examines approximately 2,200 national banks and 52 federal branches of foreign banks in the U.S., accounting for more than 54 percent of the nation’s banking assets. Its mission is to ensure a safe and sound and competitive national banking system that supports the citizens, communities and economy of the United States.

Beyond the OCC, there is the Office of Thrift Supervision, a different part of the U.S. Treasury Department, which “is the primary federal regulator of federally-chartered and state-chartered savings associations, their subsidiaries, and their registered savings and loan holding companies. “

For State banks, there are also the state regulators, a list of which can be found at the Conference of State Bank Supervisors website.

All of that is for U.S. banks. When you start talking about international banks, you might want to check out this list of Bank Regulators around the world.

Between all of these, it would seem difficult to determine who has, or should have authority over the borrowing and lending of a “limited license right available for purchase or free distribution at Linden Lab's discretion, … [which is] not redeemable for monetary value from Linden Lab.”

Yet all of this doesn’t get to the bigger issue of what exactly we mean by a currency and how digital microcurrencies are changing our understanding of currency.

To what extent should currency be based on an underlying commodity? To what extent should it be based on the goodwill of a sovereign nation? To what extent should it be based on the discretion of a company like Linden Lab?

One group of investors comes from a libertarian or anarcho-capitalist bent. Trading a currency that is backed by the discretion of a company like Linden Lab might seem more appealing that trading a currency based on the goodwill of a sovereign nation. Yet more and more there has been a move towards tying the trading back to an underlying currency, like gold. This becomes even more important as grids which will compete with Linden Lab emerge. People will want portability of currency. They may prefer the currency to be based on an underlying commodity than the market forces trying to determine the relative value one companies discretion versus another companies discretion.

Yet digital gold currencies are not without their own problems. e-gold, one of the largest players in the digital gold currencies arena was indicted last April on money laundering charges. The Wikipedia article about E-Gold says “e-gold has been perceived by the United States government as the medium of choice for many online con-artists, with pyramid schemes and High Yield Investment Programs ("HYIPs") commonplace.” That sounds a lot like concerns that have been expressed about banks in Second Life.

So, how do we understand currencies, whether they be based on the goodwill of sovereign nations, the discretion of companies like Linden Lab, or underlying commodities? How does the digital transmission of such currencies change our understanding of currency? How does all of this relate to microcurrencies?

These are very important issues to be considering. The companies that get this right, stand to do very well in our changing online marketplace. Those that don’t could get left behind.

Right now, it seems like Linden Lab is looking at the problem, finding it is too complicated for them, and reacting in ill thought out ways. It’s too bad.