YESTERDAY I happened to Google "mackerel", and came across this delightful 2008 article, from the Wall Street Journal, about the underground mackerel economy that had emerged in some federal prisons since about 2004, after prisons banned smoking. Inmates aren't allowed to hold cash; the measly amounts of money they earn from working are deposited in commissary accounts. But once an inmate buys something from the commissary he can use it as currency, assuming it is accepted as the coin of the realm. Prior to the smoking ban, cigarette packs had been a popular unit of value; once they disappeared, mackerel packets appeared as a stand-in:

Mr. Muntz says he sold more than $1 million of mackerel for federal prison commissaries last year. It accounted for about half his commissary sales, he says, outstripping the canned tuna, crab, chicken and oysters he offers. Unlike those more expensive delicacies, former prisoners say, the mack is a good stand-in for the greenback because each can (or pouch) costs about $1 and few -- other than weight-lifters craving protein -- want to eat it.

It's interesting that mackerel makes a good currency in part because it's not considered a desirable food. At first glance, that seems irrational; if your currency was something delicious, you would have more uses for it, because you could trade it as currency or eat it for a snack. But the adoption of mackerel can be understood as a self-binding device. If your currency is basically inedible, you have to use it as currency.



I had this in mind this morning when I came across Matthew Yglesias's column on Facebook Credits, a kind of currency that you can use to buy things in Facebook, like add-ons for Facebook games. It's a revenue source that Facebook is keen to grow, but Mr Yglesias is sceptical. He notes that Facebook Credits are nonconvertible; you use regular money to buy them, and if you want to cash out later, Facebook is going to take 30% as a fee. He goes on:

Nonconvertible money is hardly unheard of—it was typical of the Soviet Bloc economies—but it sharply undermines the use of a currency as a store of value. If you can't convert the credit into something else of value in the world (gold, a dollar, a stock, a car), then it is a much less effective currency. Cuba gets by with a nonconvertible currency because it's a largely closed society with an authoritarian government. China, more open but still authoritarian, gets by with a semi-convertible currency. But Facebook can't force people to accept salaries in Facebook Credits, and Sony can't stop sensible PlayStation fans from storing the vast majority of their wealth in dollar-denominated bank accounts. And since online quasi-currencies aren't a good store of value, they're not a very good medium of exchange. They're accepted as payment in situations in which network operator rules mandate their use, but nobody else really wants them. By contrast, everyone's happy to accept dollars as payment.

In other words, Facebook Credits are like mackerel. That 30% redemption fee is like the pungency of the fish—it's an incentive to use your new currency in the manner for which it was intended. The problem is that Facebook is not like a prison (give it time). If users were locked in, they might derive some benefit from commiting themselves to the standards of the system. As they're not, however, the optimal strategy—if you need to use Facebook Credits at all—is to buy them only when you need them. This is, presumably, a barrier to the growth of its credits, and Facebook is trying to grow that side of their business (by, for example, acting as a middleman between users and mobile app developers).

Mr Yglesias reckons that Facebook is thinking too small. If Facebook Credits were more flexible, or had more uses, the site could strike out as a competitor to PayPal, which is probably the easiest way to electronically transfer bits of money between people, in the United States, at least (albeit not that easy because it requires both people to have a PayPal account). I'm not sure whether he's suggesting that people be encouraged to pay each other via Facebook credits or whether his point is that Facebook could process dollar-denominated transactions as easily as it currently processes credits. But in either case, the intuition is that instead of looking at Facebook Credits as a unit of value, you could think about the Credits as the pilot for a broader Facebook Payments service. Facebook already has tonnes of users, after all, and the Credits, as narrowly construed as they are, demonstrate the feasiblity of commerce on the site. This is a space with some room for growth, and one where innovation is already afoot. Mobile payments are already quite common in Africa, and Barclays just launched an app called Pingit that lets British users send money to each other from their mobile phones. If Facebook took Mr Yglesias's advice there might be some catching up to do. But as its credits are currently analogous to a prison locker full of oily fish, it could be worth an experiment.