There are also times when a game has created its own currency to facilitate trade. A form of electronic currency is used between players to buy and sell goods or services. An exchange rate between this electronic currency and a real world currency, such as the United States dollar, often determines the valuation of the game currency from players buying and selling the game currency for dollars.
Problems with the fundamental economic model of the game start to become apparent when a continuous decline in the valuation of the game currency never seems to end. Day after day, month after month, the valuation of the game currency drops, which usually leads to mudflation in the economy. Often the problem can be traced back to the game owners/designers, who have set up a policy to give away the game currency to its members as a game function, with little to no way to actually remove money from the economy. This policy causes an ever-increasing amount of game currency in circulation, leading to more game currency being sold and forcing the price down. One example of this decline is with the Linden dollar, used in the game Second Life.
In August/September 2004, the exchange rate between the Linden and US dollar was about US$5.80 for 1000 Linden Dollars. As of February 2006 (18 months later), the exchange rate has declined to US$3.57 for 1000 Linden dollars, almost a 40% decline in value. A current Linden valuation snapshot can be found at SecondLife.com
The term mudflation became popular during the height of the MMORPG EverQuest's dominance, coming into common usage after the release of the Ruins of Kunark (2000) expansion. The origin of the term was many years prior with MUSH-style games (commonly referred to as "MUDs" or Multi-User Dungeons by their players) that also suffered from the same currency supply problems. According to Google Groups, the earliest Usenet posting that used this term was from April 1993.
Some examples include:
For example, in Dungeons and Dragons Online, players can mail items to other characters, have curses removed, or gamble with NPCs, all for an appropriate fee.
Final Fantasy XI reversed its inflationary trend by cracking down on gil farmers that were involved in real economy interaction. After many months of stability, trading prices began rising quickly, with the cost of most items doubling or tripling around the end of 2005. With many players complaining about their decreased buying power due to the inflation, the game operators decided to eliminate hundreds of such players. Without a reliable source of in-game currency, internet sellers of currency had to raise their prices. Also, a great deal of currency was removed from circulation in this process. Within one or two months, most trading prices fell back to their previous equilibrium.
World of Warcraft uses a repair system to act as a Dynamic Money Sink. For a starting character, repair costs are very small. As the character progresses, repair costs get more expensive to counter the increased money gain. Another example of a Dynamic Money Sink in World of Warcraft is the fee charged to use the auction house. A percentage of the sale price on all auction house purchases is taxed by the game, removing that money from the system. Because it is a percentage, in times of inflation more money will be removed from the system, helping to curb the inflation.
Eve-Online has a player-driven economy with some NPC merchants who curb inflation by fixing the prices of many items. Basic blueprints and skill books bought from NPCs are inexpensive, even for new players; however advanced blueprints and skill books, such as those required for Capital ship production and flight are thousands of times more expensive. These are generally only of interest to veteran players, reflecting the desire to remove money in proportion to each player's wealth.