Simplified Economic Model (SEM)IntroductionIn the virtual worlds of conworlding, geofiction and micronations the participants, at least some of them, also like to have a virtual but working economy.
Now, to set this up is not been proven easy, and also our SEM is not a perfect example, but workable.
As you might know, in a virtual world everything is virtual and digital so it is hard to create a market with sellers and buyers who have a reason to sell or buy goods, services or other things one may invent.
The SEM model can offer some degree of eager buyers and sellers of virtual goods.
Of course imagination, and a healthy dose of commitment is needed to make this, but also any virtual invention, a success..
Real world versus Virtual worldIn the real world of course goods are touchable, and do what it is been sold for. For example, if a nation buyes an airplane, it really got an working airplane.
With it it can generate revenue, and eventually the purchase will generate more money than it initially costs. This is called profit.
The seller of course, at least in a capitalistic world, makes profit by selling it for a higher price than the construction costs were.
This is economics 101. However, the construction costs, and materials used are taken from the country's resources, and own economy.
In our virtual world we do not have a usable aircraft, or other device, things or stuff. But SEM can offer a surrogate what you might like.
Enter SEMThe final goal is to have a strong own currency. That is the game. The strong currency is a competitive goal if you like, but also will reflect the wellgoing of your virtual economy. Beware, it is simplified here.
To start with a basic setup, every participating country must have a central bank. This central bank starts with an account, set at zero.
It would be nescesarry that there is an automated system, a bankingsystem that records this, and offers transactions between accounts.
The central bank is from where you create your money, its the source of your economy, and any money withdrawn from that account is usable for your great nation to buy stuff with. For the fun of it, you can create another national bank and put some money on it, comming from your central bank, the money creator.
Like the Federal Reserve or the European Central Bank. A central bank creates the money, and give or lend it to another local bank in your country.
From there you can work with it. You can of course transfer funds from your central bank to another central bank, but thats not fun.
We also need a registration system for the goods. This must be coupled to the banking system. All not too complicated, and will be explained below.
Imagine the following case:Country A wants to sell an airplane. Lets say, country A expects it to be sold for 20 miljon in the currency of country A, the A-Dollar.
It costs country A 10 miljon to make it. Nobody on our virtual world wants to buy it from A. Why ? Well, why should we ? we can manufacture one ourselves virtually as much as we want. And thats correct.
What if we gain money if we buy the airplane ?
If we buy an airplane from country A, then it costs money. So we would loose 20 miljon from our economy, the central bank goes to -20 miljon on its balance.
Hmm, thats not wat we want, because all we gain is a forum post, a pdf file, or anything like that claiming 'now you have an airplane worth 20 miljon'.
The 20 miljon worth airplane must be put into our economy as an asset and one that eventualy creates revenue.
Until now we have the simple case set, and you can already see it has no drive in it to even consider buying that 'airplane'.
Only country A,who sells it will gain 10 miljon A-Dollars, since 20 miljon A-Dollars minus the construction costs of 10 miljon gives A a profit of 10 miljon.
He will smile, got 10 miljon!.
As a buyer, we, lets say country B, must be able to put the value PLUS an extra percentage into our books, our economy.
Let say 100% of the purchased value will be added as a future revenue due to using the aircraft in a commercial travel market.
Country A has:
-10 miljon Central Bank
+20 miljon in ticket system, the airplane with the value of 20 miljon A-Dollars
(balance: +10) Important: the ticket system will be explained below
So now country B has:
-20 miljon Central Bank
+20 miljon Bank of Country B
(balance: 0)
The ticket system (or any other name you can imagine)To be able to 'move' the goods and its value the seller, country A must enter a ticket in a computer system like, 'airplane', 'value 20 miljon'
The seller recieves a secret number, the ticket number. On the market Country A announces the availablility of an airplane. Country B, we, wants to buy it, so the deal is made to buy it for 20 miljon A-Dollars.
We transfer from the Bank of Country B, 20 miljon to country A.
Country A gives us the ticket number after the money transfer.
We, country B, enter an account number in the ticket system, together with the secret ticket code, and the system will add 100%, in this case make it worth 40 miljon !. Thus, 40 miljon will be added to the account of our choice. Preferably to our central bank. We can even buy for another country if we want, by just entering the right account number.
After the transaction:
Country A has:
-10 miljon Central Bank
+20 miljon on Bank of country A
(Balance: +10 miljon) and smiling
Country B has:
-20 miljon Central Bank
+40 miljon Bank of Country B
(Balance: +20 miljon) and smiling
This creates an eager buyer market, but with a win-win for both parties. The ticket will be closed, because the system must allow only just once the transfer.
Country B by the way, may show off the new purchase :-)
Currency and Economic PerformanceA not yet defined formulla can give us the value of the currency, and thus in a vague way the economic performance of a given country.
If we take the balance of the central bank, remember this is where all the money of a country is been created, it already gives us:
- positive balance: trade surplus
- negative balance: trade deficit
To determine the currency value against any other participating nations currency we could use that balance against the population, and probably size in square kilometers to determine the current value.
A small island with a few inhabitants but with an enormous negative balance should have a much more worthless currency then a big country with a lot of inhabitants but with the same negative balance.
Thus the currency formulla needs to be determined. And in a crude way we can make a graph of all currencies, and say that is how their ecomomy is doing.
About International TransactionsIn real life you cannot as easily transfer money from an country to another. Since all is digital it doesnt work. You can only transfer money by physically transfer the paper or a value in gold for example. Since this is costly the preferred way to do this is to just open an account in the country of destination.
A quick example.The airplane example as above in the real world would require that country A opens an account on The Bank of Country B.
The 20 miljon will be transferred to that account.
Country A now has 20 miljon in the currency of country B, on an account in country B and can do with it what it likes, but only in country B, unless country B sends real paper or gold to country A and closes the account.
Country A sends the plane, and country B recieves it.
Remember, in the real world you can touch and use things. :-)
That is the reason there are IBAN and SWIFT codes, to determine the exact bank and account number. After a transfer the SWIFT network allows to send banks secured notices of internal money transfers or backing. Its all about trust in the end.
We in our virtual world could copy this and mimic its behaviour if we like but we think it will highly complicate things, especially to determine currencies. It would need a dedicated person to even figure out between all the accounts what is happening, and will make the programming of such thing not easy.
Thats why we think it would be best to be able to directly transfer between countries, albeit not real, easiest thing to do.
Computer SystemThe aid we need to use in this is a simple computer system that allows to transfer money from one given account to another account.
It needs to track transactions also.
And, it must be able to dynamically calculate a currency value by a te be determined formulla.
This is needed to convert money during an international transaction.
We need a ticket system that can add and cash-in a ticket and can talk to the money system to raise a given account with the ticket money.
Final WordsIf you have read it untill here then you maybe thinking that there will be more and more money in our virtual world because of the emmission by the central banks.
Well dear reader, this is as real as it gets.
The more money you bring into circulation, the bigger your economy can be, but the less your currency become. Inflation.
If you deflate, thus pull money from the economy, by bringing your negative central bank balance more into the plus, you currency gaines value, but your economy may shrink, you can buy less if there is no money on your banks.
There might be flaws in SEM, I hope you all can point them out and bring a solution.
Together we can do it!George Besich
Counsillor of State
Republic of Liga
www.liga.lflinkup.com www.liga.board-directory.net 
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