Amazon Coins: Another Nail to the Real Currency Coffin?

By Frank Lewis,
Just two weeks after Amazon announced its new virtual currency for Kindle Fire known as Amazon Coins, some pundits are seeing it as an additional threat to real world currencies. With fellow virtual currency BitCoin gaining increased acceptance in the past few years, the success of Amazon Coins could move the public away from real currencies.

New breed of virtual currencies
"A new breed of virtual currencies is starting to emerge - and some of the giants of the web industry such as Inc. are edging into the market," said Matthew Lynn in a blog post at the Wall Street Journal's MarketWatch Web site.

"This month, Amazon launched its own coins - a virtual currency that can be used to buy stuff for your Kindle tablet. It is a very tentative move to start with: more like loyalty points on a reward card than actual cash. But every river needs to start with a spring - and with the web's mightiest retailer behind it the coins could grow into something significant," he added.

Lynn pointed to the signs of a slow-but-sure shift to virtual currencies. BitCoin is gaining strides in circulation and value. Existing virtual currencies in games like Second Life and Farmville hold the potential to transition into the real world. And there are rumors that Apple will be coming out with an iCoin to go along with a hypothetical banking endeavor.

"There is little doubt there is a demand for virtual currencies," said Lynn. "They are, of course, completely untested. But with so much of the world's business now conducted online there is little reason why currencies shouldn't be minted online as well."

Central bankers worried
Increased usage of Amazon Coins and BitCoin could be caused by disillusionment with real world currencies, suggests Lynn. The public could flock to virtual currencies thinking that they are safer and more stable than traditional currencies like the US dollar, Japanese Yen and Euro.

"It is not hard to see why central bankers are worried. Right now, virtual currencies are tiny. Hardly anyone is taking them seriously. And yet people are increasingly losing faith with traditional currencies. They are losing value steadily to inflation. And quantitative easing and currency wars mean they are constantly being debased. They are open to alternatives."

Beyond Kindle Fire use
Meanwhile, industry commenter Shaker Cherukuri predicts that Amazon Coins will expand beyond Kindle Fire use.

"Eventually Amazon will allow consumers to buy this virtual currency and provide some sort of incentive to do so. What comes to my mind is the US Postal Service's forever stamps," said Cherukuri. "'Buy today at today's price and they are good forever and you are protected against future price increases. Inflation protection!'"

Cherukuri further predicted that Amazon Coins could eventually pay for Amazon Prime memberships, guarding subscribers against devaluations in the US dollar.

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