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Sunday, 22 July 2012

Week End Post - No concept of banking system

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I aim to post every two days one this blog.  For the weekend post i plan to post on how the World of Warcraft economy relates to the real world or theoretical concepts for the World of Warcraft economy.  Ironically, it is this subject matter which causes the most email traffic!

In the World of Warcraft there is no concept of a Banking System that is similar to the real world (no bad thing i hear some say!).  I.e. there no institution out there that allows savers to earn a rate of interest on their savings and for borrowers to borrow money from at a cost of an interest rate.

We all have surplus gold sitting in our banks earning no return.

In the real world surplus cash can be invested in US Government Treasuries and earn an annual return of 1.4% at almost negligible risk (i know, that may not be the case forever!).

This return of 1.4% can therefore be assumed to be the return one makes with no risk.  Hence, any projects one would want to invest in need to earn a return more than this 1.4% to compensate for the risk taken.

In the World of Warcraft that is not the case.  There are no Azeroth Treasuries etc.  There is therefore no risk free rate of return.

Therefore, surplus gold just sits in bank accounts earning no return.

Furthermore . . . . there is no one on trade chat asking for an interest bearing loan.  There is no one on trade chat asking to invest in their venture for a promised return.  Indeed, there is no system to facilitate such a mechanism of investing.

Hence there is no need for an institution to be set up to allow those with surplus gold to lend to those who need the gold to invest in projects thereby giving a return to the investors.  Hence, no need for a bank.

In turn, this leads to no concept of a bond market or equity market.
. . . . . and hence why our surplus gold earns no return.

Probably a good thing - but boy would that be fun to the very very small proportion of the player base that plays the auction house and enjoys the WoW economy.

Though, with a bit of thought it could be extended to allow guilds to become richer.

Looking forward to inter server lending rate!


  1. Your comment about 1.4% rated loans ignores inflation (which is generally accepted at 3%). So in essence your are losing money by having it sit around, however loaning it to the US Treasury still causes you to lose money (but only slowly). :)

  2. Yes, in many parts of the world we are seeing negative real interest rates. In part this is true in World of Warcraft given raw material and crafted goods price inflation.

  3. The current yield on US Treasuries has fallen further. 10 year T-bonds had a yield last week of -1%.

  4. Indeed, 23 are quickly going from a risk free rate of return to a return free risk!


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