Local Exchange Trading Systems Definition

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Local Exchange Trading Systems Definition

What Are Local Exchange Trading Systems?

Local Trade Trading Systems (LETS) are economically structured groups that enable group members to exchange products and services. As money, the organizations employ locally produced units of value that may be exchanged or bartered in return for commodities or services. LETS members often see the systems as well-organized and cooperative schemes that optimize buying power while benefitting members and the community.

Key Takeaways

  • Local Exchange Trading Systems are a form of bartering system used in small towns.
  • The LETS movement was at its peak in the 1990s.
  • The movement is governed by five essential principles: cost of service, permission, transparency, equivalency to regional currency, and interest-free financing.

How Local Exchange Trading Systems Work

The phrase “local exchange trading system” dates back to 1983, when Michael Linton coined it. When Linton founded the Comox Valley LETSystem in British Columbia, Canada, he intended for members to be able to control their own currency system in addition to the federal government’s.

This organization among members would enable them to engage in the local economy even if they did not have conventional cash. Members would essentially earn and spend credits by conducting commerce with one another.

LETS are based on five fundamental governing principals:

  • Service cost – administrative fees are deducted from members’ accounts.
  • No one is forced to trade unless they give their consent.
  • All account balances and turnover are made public to all members.
  • Equivalence to the area currency – local dollars or scrip are ostensibly valued at the same as Canadian dollars (or another local currency);
  • All are interest-free – debits are not interest-bearing obligations, and credits are not interest-bearing assets.
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These concepts, together with basic rules such as membership fees, extensive transaction logs, and member directories, are meant to facilitate a structured and well-run exchange.

In return for the LETS scrip, known as green dollars, members are granted an account and listed in a directory of services that are both provided and demanded. Within the LETS, these green dollars trade at par with federal cash, but they are never physically deposited, issued, or exchanged. Instead, they are just account units, and when one member completes a service for another, their accounts are updated with the equivalent value.

Transactions may not always need a nominal exchange of units. Members, for example, might reimburse other members who have done a service for them by offering a service in exchange, rather than paying for the original service.

Special Considerations

Most LETS organizations have 50 to 150 members, with a small core group that uses the system as the foundation of their existence. The movement is presently made up of those main members. The movement has shifted in such a way that the local currency is now structured to incorporate voucher systems backed by dollars as well as time-based currency—a value based on time and work hours rather than real money. Instead of utilizing a credit or local currency system like green dollars, several local exchanges have begun to use time units between members.

The LETS movement as a whole has struggled to stay up with technological advances. In truth, the organizations have been hesitant to do so due to a lack of funding and a fear that the internet may decentralize their structure.

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Many individuals struggle to adapt to this form of money system, which is quite different from traditional currency, which pays interest to savers and charges interest to borrowers. A LETS system incentivizes various behaviors since using others’ goods and services in the present and then deferring reciprocation indefinitely into the future incurs no interest expense.

Example of a Local Exchange Trading System

As an example, consider the following scenario. Assume Mary wishes to have her home painted and John accepts the task. When John finishes it, the corresponding amount from Mary’s account is credited to his account. John may then spend his green money elsewhere. People may also spend even if they don’t have any credits, making up the difference by working when they can.

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