Lately particular media attention has been given to the increasing use of digital or virtual currencies such as Bitcoin.  Up to this point, the companies often utilizing Bitcoin have been ones involved in online gambling and have found themselves insulated from governmental claims of illegality.  The idea basically hinges upon the notion that because digital currencies maintain no government ties, its users are immune from attempts to regulate value & distribution by institutional entities such as the Federal Reserve. 

And now today comes the announcement from Amazon, that the online retail giant will get into the digital currency game itself by offering its U.S. customers the ability to purchase apps, games and other items for its Kindle Fire platform using Amazon Coins.

On the surface it appears to be a great sales & marketing plan to both increase & limit commerce through Amazon's Kindle Fire ecosystem.  But looking past the strategy as simply a giveaway in order to spur customer demand, the macroeconomic incentives to develop such an approach becomes clearer.  

As a result of the current economic environment, Amazon can borrow money at a negative real interest rate, which happens when inflation rates are greater than nominal interest rates.  In this case, Amazon is actually generating a positive gain from their borrowed capital and injecting that positive balance back into its own ecosystem by giving away "tens of millions of dollars worth of Coins to customers to spend on Kindle Fire apps, games or in-app items". 

So not only is this a clever way of stimulating demand for its own products & gaining valuable marketshare in the short-term, it provides Amazon with a long-term opportunity to manage its own digital currency where future opportunities for growth & investment abound.

 
Written by

« Back