Table of Contents
A Snapshot of Community Currency Systems in Europe and North America
Introduction
1. Achieving Critical Mass
1.1 Getting Started
The "Wedge"
Community Way
The Bonus Concept
1.2 Integrating Business
The LETS Environment
The HOURS Environment
Barter Systems
Barter and Community Currency Systems
1.3 Multiple Community Trading
MultiLETS
Talents
Exchange Rates Between Community Currencies
2. Operating Issues
2.1 Fiscal Tools
Fees
Budget Spending
2.2 Monetary Tools
Loans
Money Supply
Demurrage
2.3 Inflation
Tying the Community Currency
Internal Inflation
3. LETS, HOURS or Both?
3.1 LETS and HOURS
3.2 Hybrid Systems
3.3 Community Fit
4. Key Success Factors
4.1 The People
4.1.1 The Champion
4.1.2 Administration
4.1.3 General Participants
4.2 The Community
4.3 Responding to Real Needs
4.3.1 Agriculture
4.3.2 Input Factors: Wages, Credit and Rent
4.3.3 Social Services
4.3.4 Taxes
Conclusion
Acknowledgments
Bibliography
A Snapshot of Community Currency Systems
in Europe and North America
Jeff Powell and Menno Salverda
c/o CUSO Thailand
17 Phaholyothin Golf Village, Phaholyothin Road
Chatuchak, Bangkok 10900
Tel/Fax: +66-2-513-3031
Email: or
Version 2.0 (06-20-98)
Introduction
This paper was written to serve two purposes. The first is to
provide partner agencies in the Thai Community Currency
Systems (TCCS) project with a summary of the current state of
community currency system development (c. 1998) and an
introduction to the issues being grappled with. Secondly, it is
hoped that this paper can stimulate new ideas and debate by
linking the work of existing practitioners. It is expected that there
may be some tension between these objectives; partner agencies
may find the discussion of system design issues overwhelming at
times, while those with extensive experience may feel that some
of the discussion and analysis is self-evident. We hope this does
not discourage the reader. Those who are unfamiliar with
community currency systems might refer to the articles or books
mentioned in the bibliography which discuss these systems in
more detail.
The report summarises the preliminary research for the
TCCS project which has been funded by the Japan Foundation,
CUSO and VSO (Voluntary Service Overseas). The intent of the
research was to provide the authors with as much practical
experience in community currency systems application as was
possible within monetary and time constraints. For a list of those
whom the authors contacted please refer to the
acknowledgements. The goal of the TCCS project is to share this
experience with partner agencies in Thailand in order that,
together, an appropriate system may be created for use in the
Thai context and its effectiveness analysed. A more detailed
explanation of the TCCS project, its rationale, objectives and
implementation plan, is available upon request.
Approximately one thousand community currency systems
are operating in North America and Europe. Roughly speaking, the
systems fall into four categories. The first, and largest, group,
based on the principle of mutual credit, includes LETS (Local
Employment and Trading Systems) and LETS-like trading
communities. These systems are located predominantly in Canada
and the United Kingdom, with derivatives, such as the Noppes
system in the Netherlands, appearing across Europe. The second
group, fiat systems which print their own notes, has grown out of
the Ithaca HOURS initiative in New York State (although there is
an impressive historical precedent for such schemes). The
majority of such systems are in the United States, although a few
have spread to Canada and Europe. The third group, which can be
called `hybrid` systems, are those which combine various elements
of LETS and HOURS systems, and can not, therefore, be considered
as one or the other. The final category is based on a `community
service bank` concept. The best known of such systems, called
TimeDollars, has enjoyed a good deal of support from peoples¹
organisations and government bodies alike in the United States.
[Since the goal of the TCCS project is to focus on the broader role of
community currencies in economic development rather than their
impact purely on the provision of social services (though,
certainly, to a great degree, these two are intertwined), we have
chosen to concentrate our studies on the first three groups and
only briefly discuss the TimeDollars concept.]
The paper is divided into four sections. The first three
sections discuss system design issues, beginning with an
explanation of initiatives intended to help systems reach critical
mass, continuing with an analysis of operating issues such as
taxation and inflation, and concluding with a comparison of LETS,
HOURS and hybrid systems. In the final section, those elements
which were most often mentioned by participants as being crucial
to success are summarised and discussed. This includes `people`
issues such as the project `champion`, the administrative
committee, and both the internal and external community, as well
as a brief analysis of those needs which must eventually be
addressed if community currency systems are to play a significant
role in economic life.
We hope that anyone who has any comments or questions
about either the information or the analysis contained herein will
contact us at the address noted above. The next phase of the TCCS
project is to incorporate this feedback, that of our partner agencies
in Thailand, and further study of indigenous exchange systems in
the region, into the adaptation of community currency systems for
use in Thailand.
By no means should this paper be considered an exhaustive
study of the subject matter. For discussion purposes only.
1. Achieving Critical Mass
Community currency systems have had difficulty reaching a
level of trading which is significant in the eyes of a broad cross-
section of community members. Herein, we discuss three
initiatives which attempt to gain community currency systems
greater acceptance and use.
1.1 Getting Started
The "Wedge"
During start-up it can be difficult to overcome the simple
reluctance of community members to trade in a currency that
they are not familiar with. Unlike cash, cheques and credit cards,
whose acceptance has reached the level of the sub-conscious, the
use of community currency requires a directed effort. Several of
the individuals spoken with expressed the need for a big event
which uses community currency to pay for inputs in order to kick-
start acceptance of the new trading format. To describe this
phenomena, Sat Khalsa, one of the people behind Toronto LETS,
coined the term "wedge".
The wedge could be a home renovation, a community project
or a small business start-up. More ambitious would be the
establishment of a `business incubator`, where office/retail/factory
space, equipment and services could be paid for in community
currency. The wedge should get community currency into the
hands of a wide range of people, allowing them to begin trading
without having to first earn credits (or, alternately, assume a
negative account balance in a LETS). What is important is that the
stakeholders be trusted members of the community who have a
means to pay back the credit they are extended. Without the
presence of interest rates, the downside risks are small compared
to conventional business start-ups.
There is the often cited example of Deli Dollars in Great
Barrington, Massachusetts. When restaurant owner Frank
Tortoriello¹s lease expired, he was refused a loan by the local bank
which would have allowed him to move to a new location.
Tortoriello decided to print his own notes, Deli Dollars, which could
initially be purchased for $9US and would be redeemable for
$10US worth of food in six months time. During those six months,
Tortoriello moved his store with the nearly $5,000US he raised,
and, more interestingly, the notes took on a value of their own.
Trading in Deli Dollars was happening all over town. By assuming
a large future commitment to return goods (sandwiches, in this
instance) to the community, Tortoriello created the wedge which
spurred trading activity.
Creating a wedge requires planning, creativity and small
business skills, not to mention careful timing. This reinforces the
need to involve the business sector, where such skills abound,
early on in system development.
Community Way
The Community Way model, designed by Michael Linton,
creates an initial Œopening¹ through which trading can be
encouraged and acceptance of the community currency increased.
Community Way involves three steps:
1. A community currency systems development group solicits
local business for donations to social organisations (such as an
HIV/AIDS hospice). These donations are not to be made in
cash or goods/services, as is normally done, but in a future
commitment to accept community currency units at par with
the national currency following pre-agreed upon conditions.
These conditions may include, for example, that community
currency units can only be used on slow business days; or, can
only be used for up to the profit margin percentage of the sales
price, say 30%.
2. The community currency systems development group prints
an amount of community currency vouchers equivalent to the
total donations (remember, future commitments) of local
business. These are sold by social organisations to community
members at par with the national currency. They are bought
with the knowledge that they are backed by local business, and
that they are providing much-needed assistance to social
organisations. The HIV/AIDS hospice can now use this national
currency as it sees fit.
3. Community members redeem their vouchers at participating
businesses, who are obligated to redeem at least the amount
that they agreed to donate. In all likelihood, some businesses
will attract more/less vouchers than they had agreed to donate;
it is very unlikely that community members will spend them in
the same proportion in which they were donated. In the former
instance, as long as community currency acceptance ratios are
equal to or less than profit margins, there is no loss in net profit
and still the possibility of generating new customers. If, on the
other hand, no vouchers are redeemed, the (unpopular)
business has lost nothing and, perhaps, has gained positive
publicity for their participation in the project.
At the time of writing, Community Way programmes had
been attempted‹all without success‹in Victoria, Manchester,
Hawaii and Vancouver. A renewed attempt is under way in the
San Francisco Bay area. The authors can only surmise that the
failure of Community Way has been in the implementation. While,
the concept of merchant credits appears sound, the success of
Community Way is largely dependent on the perception of the
organisers. Small business owners will only want to expend their
limited resources in supporting efforts which are well recognised
in the community. Community Way organisers should not
underestimate the role of influential individuals and the need to
seek out their support.
The Bonus Concept
The ŒBonus¹ concept was developed by Bruno Jehle, a
member of INWO (Internationale Vereinigung fur
Wirtschaftsordnung, or International Association of Natural
Economic Order) in Switzerland. Learning from experiences with
development work in India, the Bonus concept is designed to deal
with two problems which might arise if a community currency
system was implemented there. The first problem comes from the
political situation in India where middlemen and village leaders,
in addition to bankers and government officials, hold dominant
positions in the conventional money market. Their fear of losing
control of the credit market and, therefore, political influence
when a community currency system is introduced, may lead them
to use their political power to block the community initiative.
Secondly, if a community currency system were to collapse, either
because of the aforementioned political resistance or because
confidence in the system is lost, participants with positive account
balances would be adversely affected. The value of the resources
sold up to that point would be lost presuming that at least some of
them could have been sold in the market for national currency.
The Bonus system begins with donor funds being given to a
community-based credit committee. This committee, in turn,
loans the money out to interested community members. The
credit committee decides on what form the lending will take--
lending circles, credit union style lending, or individual loans. The
credit is initially issued exclusively in conventional cash, is
interest-free, and can be paid back partially or completely in local
currency units (called `Bonuses`). This creates demand for
Bonuses in the local economy.
Bonuses, in the form of paper notes, are now issued by a
separate committee to members of the community. The amount
issued should not exceed the total value of national currency loans
which may be repaid in Bonuses. Distribution could be organised
via a subsidy to low wage earners. Notably, this requires that the
Bonus committee is able to effectively manage the demand and
supply of the local currency units.
Not all of the donor money will be issued as loans to the
community. Half of the funds would be set aside in a depot (this
could be a conventional bank) to `backup` the local currency if
confidence in the Bonus is lost. This could happen if, for example,
middlemen try to convince community members that the Bonuses
are worthless and offer to buy them at a discounted price. The
backup of the local currency acts as a safety valve because
participants know they can redeem their Bonuses for conventional
money. The Bonuses could similarly be backed up by rice or
some other highly valued good. Historically, when there have
been runs on banks, once depositors realise that there are
adequate gold reserves to redeem their notes, they do not want
the gold. The same logic underlies the Bonus concept. To prevent
Bonuses from being swapped for hard currency immediately after
issuance, a penalty fee could be charged on those Bonuses which
are redeemed before a certain amount of time elapses. This would
encourage the use of the Bonuses for local trading.
After the loans have been paid back, it is possible that the
whole system would come to a standstill. The process would begin
again, with the difference that loans would be issued partially in
Bonuses. It is hoped that eventually, as the community becomes
more familiar with the community currency, the loans could be
issued completely in Bonuses and national currency backing would
be unnecessary.
The BONUS concept claims several advantages over
unbacked community currency:
* There is a higher chance that the local currency will be accepted
as a medium of exchange.
* If the system fails outright, or if the local currency is devalued
over time, there is some protection for participants.
* Increases in economic activity are more easily observed and
measured.
* Administration costs are subsidised by the interest earned on
national currency.
* Businesses are directly involved by creating the demand for the
local currency.
* As donated money will initiate projects which would otherwise
not have been possible, there may be less resistance from
financial middlemen.
The disadvantages of the Bonus concept include the following:
* Bonus is donor dependent.
* Start-up is complicated and lengthy (projected to require four
years).
* There is a risk that community members will not accept the
local currency once it is not backed by the national currency.
* Management requires considerable understanding of local
economic conditions. In particular, the timing of the issuance of
the Bonuses seems a delicate matter.
While on paper the Bonus concept provides a means to deal with
the problems of middlemen and system failure, there remain
numerous question marks. Until such time as a viable model has
been established, it remains to be seen if the claimed advantages
over unbacked systems hold true.
1.2 Integrating Business
One of the most frequently mentioned shortcomings of
community currency systems is the lack of involvement of local
business. Whereas "individual traders know what they want but
don¹t know what to offer, businesses know what they have, but
don¹t know what they want (from participation in a community
currency system)."1
The LETS Environment
There is a widely held view that LETS are clubs, with links
to the `green`, anarchist, or `alternative` movements, which
exclusively involve social favour trading intended for the
unemployed and the poor.2 While it is true that people with less
cash see immediate benefit to participation in community
currency systems, it does not follow from this that businesses can
not enjoy numerous benefits from participation. Small businesses
stand to increase market share, reduce excess inventory, and
replace input costs in scarce national currency with those in
community currency. The resulting increase in the diversity of
goods and services available for trade benefits all members of the
system irrespective of social standing.
Peterborough LETS, in Peterborough, Ontario, Canada, which
boasts the fastest membership growth of North American LETS,
has over 500 members, one third of whom are businesses. This is
in stark contrast to the decidedly low levels of business
involvement in virtually all other systems observed. While a few
systems do, in fact, remain committed to individual Œsocial-favour¹
trading, most are taking steps similar to those taken in
Peterborough in order to attract business. Three main elements
separate the approach of Peterborough LETS:
1) A willingness to include the business sector is made clear
from the outset and strategic alliances are chosen accordingly.
Peterborough LETS is housed in the offices of COIN (Community
Opportunity and Innovation Network), allowing them to receive
support from Human Resources Canada. The local Chamber of
Commerce was involved during the early stages of system
implementation.
2) A paid staff position is dedicated to promoting business
entry, facilitating participation and providing ongoing education.
The Œbusiness outreach¹ position is a fully salaried staff member
in Peterborough supported by a federal government grant.
Guelph LETS, in Guelph, Ontario, Canada, has also received a
grant to support such a position. This is in response to the fact
that, on average, six visits are required before a small business
in Guelph agrees to join the LETS.
3) Business involvement is heavily promoted. Peterborough
LETS has printed "We Accept Green Dollars" stickers which
participating businesses can display in their storefront window.
Articles about the benefits of a community currency system
which feature the involvement of local business are included in
the members¹ bulletin and circulated to local/regional
newspapers and magazines. Guelph LETS plans to promote
business participation through the creation of a brochure for
distribution to tourists. This will include both a downtown map
highlighting Guelph LETS supporters and a `free` Green Dollar.
Rather than simply printing more notes (and, thereby, raising
the spectre of inflation), these Green Dollars will be debited to
businesses who attend a fund-raising event.
Manchester LETS, in Manchester, UK, having realised that
the lack of local business participation was a barrier to reaching
sustainability, is now directing a great deal of effort towards this
end. Credit unions have been invited to handle business accounts
through the LETSystem. Seminars and training sessions have been
organised to publicise the benefits for business. When joining
Manchester LETS, businesses are advised to start slowly
incorporating local currency ratios in their prices. This initial
caution prevents businesses from accumulating large credits
which they may be unable to spend. Together with LETS
administrators, businesses are encouraged to examine where their
operating costs originate and determine which expenses could be
replaced by ones paid for in community currency. At present
there are 50 businesses out of a total of 600 account holders.
The HOURS Environment
HOURS systems have a marked advantage over LETS when it
comes to involving business‹namely, the use of paper notes
instead of debit-zero accounting3. (This is untrue, however, of
hybrid systems. See 3.2 Hybrid systems.) The greatest threat to
business integration in an HOURS environment is the participation
of over-zealous businesses‹those which take in more hours than
they can spend.
There are two measures taken by HOURS administrators to
prevent the creation of `wells`. The first, identical to Manchester
LETS, is to restrict businesses from accepting HOURS for the full
sales price of goods on offer until they have proven their ability to
spend them. In Ithaca, a popular local restaurant, Turback¹s,
agreed to accept 100% HOURS for meals. The acceptance ratio was
slashed not very long afterwards when the restaurant found itself
awash in HOURS and unable to meet its US dollar requirements.
The resulting imbalance from such a situation can be damaging for
both the organisation concerned and for the community in general;
all the HOURS which Turback¹s was unable to spend were,
effectively, taken out of circulation. Such experiences led the
Ithaca community to discourage the local branch of an
international grocery chain from accepting HOURS. It was feared
that, once the supermarket had more HOURS than it could
reasonably spend, it could afford to give away the notes as a
promotional gimmick. This would lead to a Œdevaluation¹ of the
HOURS in the eyes of community members.
The second method used to prevent the creation of Œwells¹ is
to provide personal shopping lists for those organisations which
earn lots of HOURS. Volunteer help is enlisted to ascertain what
an individual or business needs and then try to match those needs
with available offers. If those needs can not be met by pre-
existing offers, new linkages may be created. In the case of Ben &
Jerry¹s, a socially-conscious ice cream store, when it was
discovered that the owners had been hoping to renovate the shop,
administrators arranged for an HOURS loan which could be used to
pay local craftspeople to do the renovation work. Ben & Jerry¹s is
now repaying the loan with HOURS earned from ice cream sales.
(The authors were very pleased to assist in this effort.) Up to a
maximum of one-eighth of an HOUR (1.25$US) can be used on any
single purchase, allowing the shop to meet both its federal and
local currency requirements.
Barter Systems
Barter systems are gaining increasing popularity world-
wide. Estimates place the total value of barter in all its forms,
including counter-trade, at nearly one third of total global
economic flows. The attraction of barter for business lies in its
ability to increase turnover; not just in the barter currency but
also in the national currency as participants are able to reach
more customers. Furthermore, the availability of low-interest
loans in the barter currency allows business to realise increased
sales without the usual increases in operating costs.
An interesting example of such systems is the Wirtschaftring
(WIR). Established in Switzerland in 1934, the WIR has handled
over an equivalent of two billion Swiss Francs in trading in the
barter currency (also called the WIR) for its 60,000 members.
To join the WIR, companies (only companies can become
members), must pay an entrance fee, a yearly fee and a fee for
each transaction handled by the system. Most of these fees are
paid in Swiss Francs. The WIR has a for-profit, professional bank
which manages client accounts and issues credit. Managers¹
salaries are paid in the national currency generated through
members¹ fees. The barter currency represents the value of the
goods and services being traded. Like LETS, the WIR is simply a
unit of measurement in a member¹s account‹there is no paper
note. In order to simplify the valuation and taxation of goods
traded, the WIR¹s value is officially set equivalent to the Swiss
Franc. Normally, goods and services traded between member
companies are valued partially in the national currency, with the
remainder in WIR.
Members who hold the appropriate collateral can apply for
low interest WIR loans. The most popular way of securing
collateral is with a second mortgage on a house or business
premises. It is essential to request collateral to comply with Swiss
banking laws. The credit committee restricts the total value of
outstanding loans to one-third of the systems¹ annual turnover in
order to maintain the value of the WIR4.
Participating companies have found that WIR currency is
often more easily earned than spent. Over-accumulation of WIR,
accompanied by declining income in Swiss Francs, can create
serious liquidity problems. Obviously, Swiss Francs are still
required to pay for such major expenses as rent, salaries and
insurance premiums. The result is a black market where WIRs
are traded for Swiss Francs at rates 30% below the official
exchange rate5. The loss of value of the WIR in these cases may
make loans in WIR more expensive than interest-bearing loans
from a conventional bank.
Barter and Community Currency Systems
Modern barter systems are, in fact, not true barter. There is
no direct one-to-one exchange of goods. Like community currency
systems, barter systems use their own unique currencies as an
exchange medium and in some systems, as in a LETS, members
can create their own credit. Although based upon the same
operating principles, barter systems should be viewed as distinct
from community currency systems. The most notable distinction
is the difference in attitudes towards community development.
Barter systems are guided primarily by profit. The system is not
designed to prevent economic leakage¹s from one region or
community to another. A further difference lies in the valuation
mechanism. Although not by definition an ethical trading system,
there is pressure reported by LETS members to value labour
fairly, instead of adhering strictly to the profit-maximising pricing
mechanisms of the regular economy.
It has been argued that community currency systems should
use the bartering approach to include more businesses and move
away from the Œsocial favours only¹ trade image. At the same
time, barter network participants might be interested in the
smaller-scale but reliable local market provided by a community
currency system. If a multiple community trading format were to
be used, a Œbusiness-only¹ regional barter system could exist
alongside both purely community-based systems and community-
business systems without allowing leakages from one system or
one region to another (see 1.3 Multiple Community Trading,
MultiLETS). Income from community-business trading could be
used by businesses to pay wages. Currently, this is not possible as
individual workers are generally not allowed to join the barter
systems.
Many LETS developers see the integration of business as a
prime objective. The rapid expansion of barter trade shows that
when a sufficient number of members have joined a community
currency system, there is great potential to generate economic
activity that otherwise would not have occurred. This demands
that the elements of barter trading which have allowed its
widespread dissemination be better understood. The LETS-like
Noppes system in Amsterdam has set up a professional barter
circle, which exists alongside the present monoLETS. Noppes is
one of the biggest systems in the world with over 800 members
growing at a rate of 60 new members per month. The barter
circle is scheduled to begin trading in June of 1998, and, initially,
activities will be focused on a relatively small area (the
Amsterdam region). It will be set up under another name and use
different currency units since the existing Noppes system has a
non-commercial, Œalternative¹ image. Unlike most barter systems,
the barter circle will not exclude individual members, including
the Noppes members, from participating6.
1.3 Multiple Community Trading
The design of a community currency system might be seen
as an inherent limitation to external trade since trading can only
be realised within those boundaries defined by participants. It is
possible that there are limited resources available for local
currency trading or that there are needed products which are only
available in another community. If one wants to trade beyond
their community one has to rely, once again, on the national
currency. Is there a way to extend the boundaries of local
currency usage without creating leakages from one region to
another? Some care is required in answering this question.
The immediate temptation, if two or more community
currencies are equivalent to the national currency, is to allow one
currency to be traded with the other at par. This has been called
Œintertrading¹. The danger, however, is in replicating in the
community currency what we dislike about the federal currency;
namely, the tendency of money to pool where profits are highest.
If, for example, Community B started a very successful business, it
might Œsuck¹ all of the community currency units, and therefore
the trading activity, out of Community A before it had a chance to
develop its own small business sector. Intertrading causes a de
facto merging of two community currency systems, despite the
use of two distinct currencies. The accounts of each community
will, in all likelihood, not balance and therefore leakages from one
community to the other can emerge.
The second way to connect two separate community
currency systems is to allow each system to maintain an account
in the other. If, for example, Ariya of Community A were to
receive a kilogram of bananas from Bob of Community B, Bob¹s
account would be credited (in Community B¹s currency units),
while the corresponding debit would be made to the aggregate
Community A account (again, in Community B¹s currency units).
The members of Community A would then have a future
obligation to render goods/services to the members of Community
B. This has been called Œinterlinking¹. The problem here is that
individual account holders in Community A are distanced from
their systems¹ commitment to Community B. If trade is not
backed by personal commitment, the opportunity to Œget
something for nothing¹ increases. Eventually, faith may be lost,
either by the members of Community B who decide that they will
no longer trade with members of indebted Community A, or, by
members of Community A, who view with suspicion the
accumulated debt of their system.
MultiLETS
To overcome these difficulties, Michael Linton, Richard Kaye
and Ernie Yacub developed multiLETS. The multiLETS concept
means that individuals will hold separate accounts in both the
community currency system of their immediate community and in
other overlapping, neighbouring or Œumbrella¹ systems. Whereas
before, Community A was obligated to Community B when Ariya
received bananas from Bob, with multiLETS it is Ariya herself who
has a personal commitment to Community B. This, however,
requires two things: Firstly, that Ariya holds accounts with both
systems (or with System A and an Œumbrella¹ system) and,
secondly, that computer processing is available to handle the
increased complexity of transactions.7 This latter requirement
has been met by the creation of a Œregistry¹. A registry is a ³not-
for-profit administrative facility which processes transactions and
produces statements for account-holders in two or more
LETSystems which choose to use the services it offers.²8
The requirement to register transactions, effectively rules
out the use of the multiLETS concept in an HOURS environment.
Several communities which have implemented their own HOURS-
based community currency systems have considered allowing
trade with Ithaca HOURS. However, ³there was a fear that other
communities¹ HOURS would be sucked into Ithaca due to its
comparative size.²9 Following the preceding analysis of inter-
trading, this possibility seems very likely. One alternative might
be to print a unique currency which could be used solely for inter-
system trade. The new trading boundaries might be a bio-region,
a state, or an amalgamation of independent communities. This,
however, would entail greater expense and might create undue
confusion. Could, for example, a community currency be traded
for a regional currency? If not, how could this be prevented?
In North America, multiLETS remains stuck at the
conceptual stage. Attempted start-ups in Courtenay, Victoria,
Vancouver, Ottawa and Toronto have lacked the necessary support
to become self-sustaining.
In the United Kingdom, in 1994, an ambitious project,
referred to as LETSgo, was undertaken to initiate a multiLETS in
Manchester. The registry was intended to replace the several
existing monoLETS in the Greater Manchester region, of which
Manchester LETS, with 700 members, was the largest. Training
schemes were set up to educate individuals who would play vital
roles in getting communities involved not only in the gmLETS
(Greater Manchester LETS) but also to set up multiLETS nation-
wide. It was expected that businesses would be attracted to the
registry by the possibility of using the Œprime¹ currency, the Œgm
pound¹, rather than being restricted to trading in a community-
specific currency. After exhausting considerable effort and
funding, participation levels have been disappointing. In fact,
despite the establishment of an elegant system, there is no trading
taking place in the gmLETS registry10. Currently Manchester
LETS is operating as a monoLETS using the ŒBobbin¹ as their
currency. After a setback triggered by the confusion surrounding
the establishment of gmLETS, when numbers dropped drastically,
Manchester LETS membership has recovered to previous levels
(approximately 600 accountholders).
Besides Manchester LETS, there are 6 other monoLETS
operating in the region. According to Siobhan Harpur, one of the
initiators of Manchester LETS and Creative Living Centre LETS,
none of the Manchester systems have any formal arrangements
for members to trade with each other. Most people who want to
trade in more than one system are members of each system.
There are informal arrangements between such people. For
example, members of Manchester LETS who know that Siobhan is
a member of both Manchester LETS and Creative Living Centre
LETS, ³will get (her) to buy things for them and they'll pay (her) in
Bobbins (Manchester LETS currency)². Despite its support from
key LETS developers, the Registry concept has not been accepted
by the general membership of the monoLETS in Manchester. It is
the authors¹ feeling that members have chosen to go their own
way after the confusion and drastic change experienced with the
LETSgo project.
East Kent LETS has gone through the process of transforming
four monoLETS into a multiLETS. Members can trade between
communities using the Œumbrella¹ currency, the East Kent Unit
(EKU). New members automatically receive two accounts. The
administrators of individual communities continue to create
directories and organise local market days, while the accounting in
either currency (Œindividual¹ or Œumbrella¹), is handled by one
central administration. This has resulted in the reduction of
transaction fees and a decreased workload for volunteers. Despite
the presence of a multiLETS, most trading (over 95 %) takes place
within individual LETS11.
Apart from more successful multiLETS such as East Kent, it is
the authors¹ view that generally the administrators of individual
LETS fear losing control of an initiative that they have invested a
great deal of time and effort into. This may be indicative of a
misunderstanding of the precepts upon which multiLETS operates.
There may be a mistaken belief that multiLETS poses the same
threat to individual LETS systems¹ stability and autonomy as
Œintertrading¹ or Œinterlinking¹.
These perceptions of multiLETS must be taken into
consideration before implementation. In theory, once an
Œumbrella¹ system is in place, there is little need for local
administrators. Volunteer effort would still be required to publish
the Œoffers/requests¹ directory and to carry out education and
awareness activities, however, transactions and account records
could be handled at the Œumbrella¹ level. In practice, this ignores
the political reality‹the presence of both stubborn resistance to
change and well-grounded fears of undemocratic forces assuming
control over what had initially been a community effort.
It is the authors¹ opinion that the development of multiLETS
has preceded the preparedness of individual systems to accept it.
As long as system growth in individual communities has yet to
reach significant levels, there is relatively little demand for multi-
community trading. MultiLETS proponents would respond that
the inclusion of multi-community trading is critical in making
community currency systems relevant for a larger proportion of
the general population. The concept is sound‹namely that
currency should follow the nature of goods traded without causing
leakages from one community to another. As demand for multi-
community trade increases, multiLETS and similar systems should
evolve naturally.
Talents
The Talent system12 in Switzerland operates as a nation-
wide monoLETS. Only one currency is used and accounts are
handled centrally. Multi-community trading can take place via
intertrading. Despite this capacity, over 95% of trading takes place
within individual regions rather than between them. Intra-
regional trading predominates because regional administrators
print directories and organise market days, but also because the
majority of trading involves services. In January, 1998, the
system had 762 members nation-wide and 866,516 Talents had
been exchanged over 4,057 transactions. It is not clear whether
leakages can be avoided once there is greater demand for inter-
region trading, or if some kind of control will need to be devised
to prevent unbalanced resource flows from one region to another.
Certainly, the Talent administrators have no plans to set up a
multiLETS. There is no call for more autonomy from the
individual regions and, indeed, some LETS promoters in
Switzerland would like to see the system increase its trading with
neighbouring countries.
Exchange Rates Between Community Currencies
Renato Pichler from Talents Switzerland has developed a
method to allow trading between the nation-wide Swiss Talent
and the Talents in Italy and Austria. The different Talents are all
at par with their respective currencies. Exchange rates between
the various Talents are determined by comparing the purchasing
power of each currency using a basket of goods whose composition
and weighting is determined by the membership.
The problem with this method is that there is room left for
speculation. The exchange rate is determined by taking the
average value of a number of different goods; this does not mean,
however, that the exchange rate will be an accurate reflection of
the relative prices for all goods. A speculator could buy a lot of a
single item which is relatively undervalued in currency A and
then sell it in another region where it is overvalued in currency B.
The revenues in currency B could then be exchanged for currency
A and the cycle begun again. If, for example, the Talents price of
potatoes in Switzerland was relatively cheap using the Italian-
Swiss Talents exchange rate, there would be an incentive to
transport potatoes form Switzerland to Italy. This would be both
damaging for potato producers in Italy and jeopardise the
credibility of the system.
To counteract the danger of speculation, the administrative
body of the whole intertrading system would have to put controls
on trades being made. This planning and monitoring requirement
would be the price paid for an exchange rate system which
facilitates increased trading opportunities between communities.
So far no such trading exists.
2. Operating Issues
As with any economy, a community currency system incurs
administrative costs, therefore, a system must be devised to raise
revenues. Furthermore, members of the community may want to
either encourage/discourage economic growth or support a variety
of community initiatives. The various methods to accomplish
these goals are discussed below. Their impact on inflation is
subsequently examined.
2.1 Fiscal Tools
Fees
Within LETS circles, some debate exists as to the best
method to raise the community currency required to cover
administrative costs. The argument is between the proponents of
Œtransaction fees¹ (members accounts are debited a small
percentage of the value of every trade, or a constant amount per
trade, which is credited to a central administrative account) and
those in favour of Œflat fees¹ (each member¹s account, whether in a
positive or negative balance, is debited an equal share of a
periodic administrative charge, irrespective of trading activities).
The evolution of Guelph LETS was similar to that in
numerous communities. Initially, a five percent transaction fee
(up to a maximum of fifteen Green Dollars per year) was levied.
Funds were accumulated and paid out as needed for
administrative expenses. Any excess income was given out in the
form of grants to community organisations as decided at a general
meeting. Experience with transaction fees led many members to
feel that they acted as a disincentive to trade‹essentially
punishing those who were active traders and rewarding those who
were not. Guelph LETS now uses flat fees, as do most other LETS
systems spoken to. The growing consensus is that flat fees based
on a Œcost of service¹ principle provide the greatest transparency
and the least disincentive to trade. The former point is
particularly important in communities where administrative
responsibilities are not shared by a broad cross-section of
members.
In an HOURS environment, in the absence of member
accounts, the only method available to cover administrative costs
is through the sale of advertising space in the HOURS
Œoffers/request¹ directory. Some might ask why not simply print
more HOURS to pay the bills? Paul Glover maintains that it is
better to seek federal currency donations or employ volunteer
effort rather than risk the loss of confidence and inflation that
might follow from such a policy. This reflects a more general
attitude held by HOURS proponents that systems should look
externally for administrative support while LETS has enshrined a
Œpay-for-work¹ principle.
Budget Spending
The opposite of the taxation issue is that of budget spending.
Profligate spending on administrative tasks, without the necessary
accompanying taxation, has nearly meant the collapse of several
LETS. Toronto LETS central account had reached a negative
balance in the thousands of Green Dollars before there was a loss
of confidence and a nearly fifty percent decline in membership
(see 2.3 Inflation, Internal Inflation). Accordingly, most LETS
have now taken steps to prevent overspending, including a year-
end settling of the administrative account and a separation in
year-end trading summaries of Œreal¹ trade and Œbusy work¹.
Both LETS and HOURS-based systems use grants to
community organisations to stimulate trading activity. LETS
communities balance the outflow from the central account by
charging a flat fee to members; HOURS communities establish what
percentage of non-grant hours may be issued as grants (11% in
Ithaca, New York; 5% in Kingston, Ontario). In both cases, the
mutual agreement of system participants is required. Although
fulfilling a valuable role in supporting community projects,
administrators need to be aware of the potential of community
currency grants to slow the process towards sustainability. Rather
than expanding trade by creating their own credit, members may
become reliant on tax-and-spend injections. This would lead to
rapid increases in trading subsequent to the issuing of a grant
followed by a period of stagnation. For a LETS to become self-
propelled, it is important for members to accept that negative
balances are healthy and, in fact, vital for trade.
2.2 Monetary Tools
Loans
While LETS systems rely more heavily on the fiscal tools of
taxation and spending, HOURS administrators encourage economic
growth via monetary policy. In Ithaca, up to 5% of HOURS issued
(other than as loans themselves) can be lent out as interest-free
loans. No single loan can exceed fifty HOURS, and decisions
regarding eligibility are made at monthly potlucks. This policy
can be either tightened or relaxed depending on the growth goals
of the system.
In principle, LETS allow their members to create their own
unlimited credit. However, in practice, many systems have set a
limit on negative account balances. Kitchener-Waterloo LETS, in
Ontario, uses -500G$ as a limit. Peterborough LETS uses a more
strict -250$G. The Talent system has set its credit limit at -700
Talents, apart from the social organisations who can go further
into debt as agreed by all the members. In the Noppes system the
credit limit is equal to the amount that a member has earned in
the last 12 months. The reverse holds true as well; members¹
positive balances can not exceed what they have spent over the
previous year.
In this way, members can be confident that no individual
will receive a disproportionate amount of goods and services and
then leave the system without Œrepaying¹. While, conceptually at
least, such losses could be absorbed by the larger community and
have little or no effect on the value of an unlimited currency, in
practice, the perception that a few are exploiting the many could
lead to a loss of confidence in the currency. Furthermore, the
departure of negative account holders upsets the balance of trade.
There will be less incentive to trade as positive balances
(representing a commitment to receive goods or services)
outweigh negative balances (representing an obligation to provide
goods or services). This imbalance may need to be remedied by
the imposition of a Œfree rider¹ tax; essentially, sharing the debit of
the departing member amongst the remaining members.13
Virtually all LETS systems have their members agree to
repay any negative account balances in federal currency upon
departure from the system. Both Manchester LETS and the
Noppes system actively remind members who plan to leave the
community of their obligation to settle their account. It is
difficult, however, to imagine that these actions have any Œteeth¹ in
the case of intentionally delinquent members. One further option
is for the system to prepare for such events before they occur
through the imposition of an insurance tax which could be used to
maintain the overall balance of the system.
Money Supply
The second monetary option available to HOURS
administrators is direct manipulation of the money supply. The
authors discovered that this issue is a Œblack box¹ for LETS
practitioners‹ŒDebit-zero accounting doesn¹t require any
manipulation of the money supply; money is created as needed.
Just how do HOURS administrators know how much money to
print?¹‹so it is probably worthwhile to spend some time
explaining it here.
Community members wishing to participate in HOURS
trading fill out a form which includes personal information as well
as space to list offers and requests. This is sent to the
administrator, where the pertinent information is placed in the
next Œoffers/requests¹ directory, and a pre-agreed upon number of
HOURS notes are mailed to the new participant (two HOURS in
Ithaca). There is tacit, though some argue for the need for
formalised14, agreement that, in return for the right to use these
Œfree¹ HOURS notes, recipients must, in turn, accept them for the
goods and/or services which they offer to the community.
Moreover, if for any reason one should discontinue their
participation, they must repay the HOURS which they originally
received. Whether explicit or not, what this means is that HOURS
notes are backed by the commitment of each participant to accept
them; if participants refuse to accept them, for whatever reason,
their value diminishes. Conversely, the more people that agree to
accept them for a greater variety of goods and services, the more
the value of the note increases. (This is also true of LETS trading
units.)
Every so often (eight months, equivalent to two issues of the
directory, in Ithaca) participants are sent a renewal form. This
form assures that both personal information and Œoffers/requests¹
are kept up to date. Continued inclusion of outdated offers and
requests is an excellent way to frustrate traders and destroy the
credibility of the system as a whole. In return for filling out and
returning the renewal form, participants receive a pre-agreed
upon amount of HOURS notes (four HOURS in Ithaca).
To tighten the money supply, HOURS administrators can:
* specify offers for which HOURS will not be paid (if, for example,
there is an over-abundance of shiatsu massage therapists)
* reduce or eliminate the number of HOURS paid to new sign-ups
and/or renewals
* reduce the percentage of HOURS which can be given out as
loans/grants
To expand the money supply, the opposite occurs.
Administrators can:
* specify offers for which additional HOURS will be paid (if, for
example, there is great demand for plumbers)
* increase the number of HOURS paid to either new sign-ups
and/or renewals
* increase the percentage of HOURS which can be given out as
loans/grants
Undoubtedly LETS proponents are unsatisfied with this
explanation. ŒYes, but how do they know when to
increase/decrease the HOURS supply and by how much?¹ There
simply is no secret formula. In informal discussions,
administrators ask key participants (those whose trading volume
is significant) if they have more HOURS than they can spend. If
the answer of a single organisation is yes, then the first step is to
help them to spend their HOURS (as outlined in 1.2 Integrating
Business, The HOURS Environment). If several organisations have
a surplus of HOURS, then steps are taken to tighten the money
supply. In this respect, HOURS administrators are much like US
Federal Reserve Chair Alan Greenspan‹they make a best guess
and hope that severe problems do not arise. In small systems,
where the money supply is slowly expanded and carefully
monitored, there should not be unmanageable supply problems.
Indeed, in those systems spoken with, this is the case. However, it
would be fair to assert, that if an HOURS system reached a
significant size and the HOURS supply was expanded beyond the
demand for goods and services, there is nothing in place to check
inflation or waning confidence. This stresses the need for a
transparent process of money supply manipulation and competent
leadership.
Demurrage
The term Œdemurrage¹ is used to describe charges which are
levied on positive account balances--in effect, a negative interest
rate. The concept originates from Silvio Gesell¹s assertion that
money is a public good which serves the function of exchange.
This justifies a fee being levied on its use. Money should not
serve as both a medium of exchange and a store of value at the
same time.
In his book entitled, ³The Natural Economic Order²,
published in 1913, Gesell outlined his ideas for monetary reform.
He developed a Œstamp scrip¹ system which was intended to
increase the velocity of currency circulation by encouraging
participants to spend rather than save15. A note, or Œscrip¹, was
designed which had 52 spaces on the reverse side, one for each
week of the year. The face value of the scrip would only be
maintained if a stamp, costing 2 per cent of the face value of the
note, was affixed to the space on the back corresponding to a
particular week. Participants spent the scrip quickly, in order to
avoid paying the costs of the stamp, thereby preventing hoarding.
Stamp scrips were in common use in Gesell¹s time and gained
popularity in Europe and North America during the depression in
the 1930s.
Currently the Talent system (see 1.3 Multiple Community
Trading), which draws inspiration from the writings of Gesell,
levies a 0.5 % monthly charge on positive account balances.
Furthermore, Talents notes are printed with an expiry date, after
which the note is worthless. Those holding the note as the expiry
date approaches must exchange the note for a Œnew¹ one; this
provides the incentive to spend the note rather than go through
the inconvenience of redeeming it.
Thomas Greco, author of ³New Money for Healthy
Communities², disagrees with Gesellians that fees should be levied
on creditors only (in the form of a demurrage charge); he insists
that they should be levied equally on debtors and creditors (in the
form of a regular administrative charge). Greco claims that when
a local currency or scrip is properly issued and its supply is not
artificially restricted, there should be no incentive for hoarding.
The demurrage which the stamp or an expiry date represents is
therefore unnecessary16. In similar fashion, other LETS
proponents argue that there is no need to punish creditors
because local currency is not scarce. Therefore, others do not need
the credit that someone else has created‹they can create it for
themselves.
It could be argued that demurrage charges introduce
unnecessary complexity. They may be seen as a disincentive to
join a community currency system‹essentially, fining those who
successfully save money. Noppes, another system which uses
demurrage fees based on Gesellian thought, tries to mitigate this
risk. The positive account ceiling beyond which demurrage is
levied is based on a participant¹s previous twelve months¹ trading
volume. The more trading a business does, the higher its ceiling
and, therefore, the less likely it is that demurrage fees will be
levied. The presence of a limit on negative account balances and
charges on those who exceed it, means that debtors and creditors
both pay a user fee for money in the Noppes system17.
Having considered the arguments for and against
implementing demurrage charges, their use might be considered
where problems have arisen due to hoarding (in fiat systems),
slow circulation or an overabundance of positive account balances
(in mutual credit systems).
2.3 Inflation
Tying the Community Currency
In North America as well as in Europe, virtually all
community currency systems have tied their currency to the
national currency, mainly to make it easier for members to value
their transactions. Tying also simplifies accounting and tax
calculations for participating businesses. According to the LETS
design manual, the LETS currency (often called ³Green Dollars²)
must be tied to the national currency if it is to be officially called a
LETSystem18. HOURS systems are less strict about this
requirement. National currency equivalents are given as a
guideline, however, members are encouraged to determine their
own prices outside of the market system. A Kingston HOUR, for
example, is equal to twelve dollars Canadian.
Tying the local currency to the national currency has one
significant implication. If buyers and sellers expect the parity to
be maintained, the value of a community currency must follow the
ups and downs of the national currency. Some might argue that
this is not a problem as the value of the community currency unit
depends on the availability of goods and services, and, therefore,
the purchasing power of the local currency remains constant
(remember, local currency is not scarce). However, as Richard
Kaye argues, if those in credit see the value of what they have
done in the past depreciate, this will limit the total of goods and
services they will sell to others for the purpose of savings, which
in turn will limit the contribution the LETS currency can make to
the local economy. Kaye concludes that, ³ beating inflation
requires a monetary standard²19. Inflation was not perceived as
a problem in the LETS visited, however the Dollar, Pound, and
Franc have been relatively stable when compared to the Peso,
Baht or Rupiah.
Trying to avoid these potential instabilities requires the
creation of an independent standard for valuing goods and
services. One option is to tie the local currency to the value of a
single good or a basket of goods. Although it can be expected that
the value of this basket stays relatively stable over a long period
of time, whenever there is an increase in the value of this
commodity (or commodities) relative to wages this will cause a
slump in trade.
Alternately, the local currency could be based on an hourly
wage rate as decided by the community. This way the money
supply will be limited only by what people credibly promise to do
for each other rather than by the availability of a single
commodity or basket of commodities or other products. The
standardisation through an hourly wage is practised in very few
LETS in the UK but, certainly, the concept appeals to many
systems. In most LETS, wage levels are already higher than
market levels.
Most community currency systems development groups
state in their promotion leaflets that it is up to members
themselves to decide how they want to value goods and services.
Conceptually this seems the most ethical way of dealing with
prices as these prices would better represent community norms
and values. However, the inexperience of community members in
valuing what they buy and sell independently of the market
makes this option difficult, at least in the near future. It is the
authors¹ belief that the independent valuation of goods is a long
process requiring education and practical experience in local
trading.
In ³Hometown Money², Paul Glover agrees that one way to
deal with inflation is to calculate prices independently in HOURS,
however, ³Šthis could succeed only to the extent that needs can be
fulfilled locally.²20 If most goods and services continue to come
from outside the community, then an independent valuation is
meaningless‹prices will still have to be paid in the equivalent to
inflationary US dollars. The other option put forward by Glover is
to, ³Šdeclare the Ithaca HOUR equal to a 1991 US ten dollar bill.²
While solving the problem of inflation, this solution would be
difficult in practice; periodically, an inflation coefficient would
have to be calculated. For example, rather than the present use of
ten dollars as a guideline, one HOUR¹s nominal value might equal,
say, $US12.60, although the real value would remain equal to ten
1991 dollars. This would complicate pricing decisions, particularly
where split-pricing is involved.
There is another, less visible, exploitative relationship to
which a tied system is susceptible. In a one-to-one relationship
between the local currency and the national currency the two
currencies are in a market relationship, with various rates of
exchange. If the convertibility advantage of the regular currency
were played off against the limited utility of the community
currency, the result could be that buyers who have nothing to
offer except community currency as a payment medium would
have to compensate for this disadvantage by offering a higher
price. To illustrate: a bakery sells bread for 100 dollars in regular
currency and for 110 dollars at a currency proportion of 80:20.
The application of this arrangement will very quickly lead to the
parallel currency coming into disrepute as a Œpoor people¹s
currency¹ liable to exploitation, unattractive to hold21.
Internal Inflation
Apart from the inflation caused by external pressures on
community currencies, there are internal factors which play a role
in the valuation of the community currency unit. Several system
administrators have tried to stimulate trading by issuing extra
credits beyond those generated from taxation (see also 2.1. Fiscal
Tools). In a LETS, this internally generated inflation can be
defined as the excess of debits over credits. This excess, an
Œartificial injection¹ into the community currency system, can be
stated as a percentage of the total monthly trading volume as
follows:
= central account end-of-month balance (debits over credits)
total trading volume for the month
This influx of unbacked money has the potential to raise
false expectations as energy available has been created where in
fact none can be expected. Furthermore, influxes of unbacked
money often to go to some people and not to others; this can
create animosity, which was the experience of VicLETS in Victoria,
British Columbia22. Despite these risks, there is no conclusive
evidence that unbacked injections must lead to currency
depreciation. This depends largely on the confidence in the local
currency. If confidence declines and community currency prices
begin to rise, administrators should certainly try to balance the
accounts through taxes or at least check the growth of the surplus
by eliminating local currency grants.
Depreciation does not have to be caused by money supply
led inflation. A further cause can be an insufficient supply or
diversity of goods and services available for trade. If members
find themselves unable to spend the local currency units they
earn, they may lose confidence in the system and, consequently,
the value of the local currency may be adversely affected.