Microsoft may be preparing to discontinue its virtual currency system by the end of the year. Inside Mobile Apps reports that the software giant will phase out Microsoft Points in favor of real money based on the local region of Xbox Live accounts. The move may sound surprising, but Microsoft has already started to introduce cash purchases for its full Xbox Live games instead of using the points system.

Microsoft Points allow customers to exchange money for allotments of points to purchase game add-ons, themes, gamertag pictures, and more. The points can also be used in the Zune Marketplace to purchase music and videos. Microsoft has long been criticized for its approach to the virtual points system, with most criticism focusing on the fact that users have to purchase points in increments. 80 Microsoft Points converts to one dollar in the US, and users often have to purchase more than they actually require, resulting in a confusing experience for consumers.

Windows Phone accepts Microsoft Points for Xbox Live avatar items, but game purchases and applications use traditional currency. Despite the broad, but inconsistent, use of Microsoft Points, it makes sense that Microsoft could be looking to phase the system out, although we cannot verify the report. Windows 8, Microsoft's next-generation operating system, is expected to debut later this year and will include Xbox LIVE integration. The Windows Store, used to purchase apps and games on Windows 8, will use cash instead of Microsoft Points, and the timing appears to coincide with Microsoft's broader strategy to simplify and consolidate its Xbox, Windows and Phone platforms, both in user interface and functionality. The company isn't discussing any plans for Microsoft Points, saying it "doesn't comment on rumours or speculation."