Anyway what if they did? They don’t have the kind of tools at their disposal like a Central Bank does, i.e. Interest Rates so I suppose they’d be well with in their rights to do so.

I do not find strange LL is trying to mantain stable the change:

A too strong Linden$ would be very nice for users already doing money inwolrd, but it would actually would be a problem for newcomer making for them less convenient entering in SL.

Of course minting Linden and taking real US$ for Linden is a very good business for itself!

The real problem is pointed by Jacko, till SL is fast growing stabilizing the LL means gaining real $… but if the trend will change LL would be in the need to buy L$. Will they do it? Or will they leave the Linden going down… with a clear nasty effect on the inworld economy?

That’s the real question on the future!

You are right. Every time I look at that graph I get it backwards.

Surely you mean “increase in value of the L$”? It used to be it took L$320 to buy US$1. Now it only takes L$270 to buy a US$1. That means the value of the L$ has increased, or the value of the US$ has fallen, since it’s only worth L$270 rather than L$320 it used to be able to fetch. Actually, US$ has been weak recently, so it’s probably a bit of both. But regardless of how you slice it, the value of the L$ increased significantly relative to the US$ in September.

Against other currencies is obvious the L$ has depreciated as it has followed the US$ trend. Now, if this is what LL is doing, they are playing a very dangerous game which is called “currency peg” or “conversion board” monetary system. Similar to China or to Argentina to name a few recent systems similars to these.

These systems are easy to mantain while hard currency money (i.e. US$) flow in. But if the flows stop, and you have a reverse of the flows, the only way Linden Labs will find to support the L$ is by throwing US$ into the market in exchange of unwanted L$. If this happens you will have a run on the L$ and obviously a devaluation (against all currencies including the $L) and inflation inside the world.

Second, the US money supply is controlled by the Federal Reserve Board. LL buying, creating or selling $Ls has no impact on the US money supply. The conversion to USDs takes place only as a priced commodity. There is no risk of LL “creating” real money and no risk to them of being accused of breaking any sort of counterfeiting laws in that regard. LL churning out $Ls is not printing money. It is creating numbers in an account that residents and LL choose to believe have a USD ratio.

Firstly it would blow a great big hole in the ‘L$ are worthless’ part of the TOS. Selling the things is one thing – that makes it clear that some of US think L$ have value. But if LL buys L$, well, think it through.

Secondly, selling freshly printed L$ for US$ is one thing, but to BUY them back, LL would have to use real US$ – where from? And no matter how dumb you think they are, I can’t see them printing US$ (you never can tell though).

Thirdly, to buy L$ back would mean they’d have to stop selling them. Yeah, obvious, but… If they stop selling them it turns of a VERY significant revenue stream for LL. Personally I can’t ever see them doing that. Indeed, this month’s reduction in Supply Linden’s sales must have made their eyes water.

I did not graph or do any analysis on the relative volume of new L$ vs used L$ on the market but it sounds interesting enough that I will in the future.

I also agree with your assessment that Supply Linden is keeping the exchange rate by controlling the maximum trading value. Looking at the Exchange Rate graph you can see the stabilization started right around the time that LL began selling L$ (July 2006).