The South Korean Supreme Court has ruled that the fictional “cyber money” used in online games can legally be exchanged for actual cash here in the real world. The ruling means that players of online games can sell their in-game currency to other players for real-world money. It also means that the South Korean government is going to tax the proceeds of those sales.

As reported in the Korea Times, the ruling came when the court acquitted two gamers who had been indicted for selling 234 million Won (around US$206000) worth of “Aden”, the cyber money used in the online game Lineage. Aden can be used to buy in-game accessories, weapons, and so on to enhance a player’s character in the game. The newspaper reports that the two gamers traded the money at an exchange rate of about 1 million Aden for 8000 Won.

The gamers were indicted and fined under a law that banned the exchanging of cyber money for hard currency. However, an appellate court overturned the decision, maintaining that trading cyber money for cash is only illegal if the cyber money is obtained through online gambling. In Lineage and similar types of online games, cyber money is earned through skillful gameplay and not by chance, according to the court. After the prosecution appealed, the ruling was upheld by South Korea’s higest court.

The ruling only applies in South Korea, but its effects may be felt well beyond that country’s borders. Industry observers are expecting the decision to stimulate the online gaming market – as well as the associated markets that surround the gaming market. And cyber money is big business. The Korea Game Development and Promotion Institute says that more than 830 billion Won (US$732 million) worth of cyber money was exchanged online in South Korea in 2006, and that amount might have exceeded 1 trillion Won (US$882 million)in 2008. With so much currency flying around, it is no wonder that South Korean courts have also ruled that the proceeds from trading cyber money are subject to a 10 percent value added tax (VAT).

Game industry observers expect that the online trading of in-game items and cyber money for cash will increase as a result of the ruling. The game companies may get in on the act as well, by handling the trading themselves. In fact, some social gaming companies already do this. Zynga, for example, accepts real money for in-game currency and objects in its various social games found on Facebook and elsewhere.

It will be interesting to see what effect Korea’s court ruling will have on the worldwide game currency market. Every locality will have to deal with not only tax issues, but also exchange rates and regulatory issues. When does a game provider become a bank, and whose laws govern cyber money that crosses political borders? Until these issues are worked out, you may want to stuff your cash in your real-world mattress.