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LETS

Introduction

Local Exchange Trading Systems or Local Employment and Trading Systems (LETS) are ‘social’ mutual credit currencies where members trade skills, services and resources with each other by using credits issued by members themselves. LETS was originally conceived by Michael Linton and David Weston in 1983 in Canada as “a self-regulating network which allows its users to issue and manage their own money supply within the boundaries of the network” 1.

As a voluntary association of individuals (members), LETS typically hold the following features 2:

  • co-operation: no-one owns the network
  • self-regulation: the network is controlled by its members
  • empowerment: all network members may ‘issue’ the ‘internal currency’
  • money: used primarily as a means of exchange

LETS hold many similarities with trade exchanges systems. Whereas trade exchanges can be essentially defined as being for businesses purposes only, LETS are meant to encourage ordinary citizens to trade with each other and is usually run by volunteer community members on a not-for profit basis 3.

Typical Purpose

A LETS is designed to strengthen the local economy and empower community members 4. A LETS makes the economy more resilient by addressing two failures of the mainstream monetary system: it provides an abundant medium of exchange and it creates a currency that cannot leave the area 5 . By exchanging goods and services with local currency, members (theoretically) save on the expenditure of official currencies and thus increase their purchasing power. LETS currency is at the same time abundant as credit is simply created with every transaction and inflation-free. As a result of the increase of personal economic relations, LETS also serve as a means to encourage social cohesion and community building.

LETS can be effective in attracting people excluded from the mainstream economy (e.g. unemployed). Indeed, LETS-credit enables people at the margins of society to exchange goods and services not valued in the conventional market economy. By becoming economically active, they consequently gain opportunities to reconnect to their community and therefore improve their socio-economic condition.

Examples

There is a great variety of LETS initiatives around the world, most of which are located in Canada, Australia (where most are referred to as CES), New Zealand and Europe (called SEL in French and Tauschringen in Germany). Prominent examples include:

  • Calgary Dollars (Canada),
  • LETSLink, a service organization for LETS in the UK,
  • Le Grain de SELSystème d’Échange Local (France),
  • Noppes (The Netherlands).

Typical Details

LETS in numbers

According to Greco 6, in 2001 there were approximately 1800-2000 LETS worldwide. In recent years, however, the number of LETS active and the number of participants has significantly decreased 7.

Function and Unit of Account

As the name suggests, LETS primarily serve the function by being a medium of exchange. Because no interest is charged or paid, there is no incentive to hoard credits, so exchange becomes the primary objective of LETS-credits. As opposed to conventional currency, LETS-credit is created by the members themselves and not by banks or governments. Once the transaction has taken place, the seller, having a positive balance on his/her account can use the credits to buy goods or services.  For ease of use, the value of LETS credits usually equates that of national currency 8.

Issuance – backing

In the early days of LETS, transactions occurred using cheques, which were then sent to the bookkeeper. Nowadays, transactions take place on the Internet; thus, no paper or coins carrying value are involved.

LETS-credit is created with every transaction taking place in the system. All participants start with zero trade credits. With every transaction the account of the buyer is credited and the account of the receiver is debited by the same amount. The trade credit itself is not redeemable for ordinary currency, it is not backed by any good or service, nor is there any collateral involved. Having a positive balance means that one can lay claim on products and services in the community. In contrast, having a negative balance entails that one has an obligation and a promise towards the community to deliver goods or services in the future.

How it works?

A typical LETS functions as follows. Initially, all participants have an account with a balance of zero. An online platform includes all the wants and offers to be traded. When two members agree on a transaction, they negotiate the price in terms of credits, as it would happen for ordinary cash transactions 9. The account of the buyer is debited and the account of the seller is credited by the corresponding amount. That means the total of credit within the LETS (positive balances minus negative balances) always adds up to zero.

 

References

  1. Linton, M., A. Soutar, (1994), The LETSystem Design Manual, Landsman Community Services Ltd Paper 1.3 V.1.3, accessed on 5 September 2013 at <http://www.gmlets.u-net.com/design/dm1%5E3.html>
  2. Linton, M., A. Soutar, (1994), The LETSystem Design Manual, Landsman Community Services Ltd Paper 1.3 V.1.3, accessed on 5 September 2013 at <http://www.gmlets.u-net.com/design/dm1%5E3.html>
  3. Greco, T. H. Jr. (2001) Money. Understanding and Creating Alternatives to Legal Tender, White River Junction, VT: Chelsea Green Publishing. 89
  4. Seyfang, G. (2002) ‘Tackling Social Exclusion with Community Currencies; Learning from LETS to Time Banks’. International Journal of Community Currency Research, 6 (3): 1-11: 3
  5. Seyfang, G. (2004)(7) “Time banks: rewarding community self-help in the inner city?”
  6. Greco, T. H. Jr. (2001) Money. Understanding and Creating Alternatives to Legal Tender, White River Junction, VT: Chelsea Green Publishing
  7. Seyfang, G. (2002) ‘Tackling Social Exclusion with Community Currencies; Learning from LETS to Time Banks’. International Journal of Community Currency Research, 6 (3): 1-11:3
  8. Seyfang, G. (2002) ‘Tackling Social Exclusion with Community Currencies; Learning from LETS to Time Banks’. International Journal of Community Currency Research, 6 (3): 1-11:3
  9. Greco, T. H. Jr. (2001) Money. Understanding and Creating Alternatives to Legal Tender, White River Junction, VT: Chelsea Green Publishing
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