Stuff I Do

Experiences and Encounters in Pune

Local Exchange and Trading Systems

Posted by Sanskriti on August 7, 2009

Local Exchange and Trading Systems (LETS) are community-owned systems of localized transactions not dependent on the formal government backed currency/ money system. LETS are emerging as a means of stimulating or strengthening local economies and communities, for goods and services that people can easily produce and trade locally.

At first, local economies were barter-based, and in indigenous societies, embedded in culture. Different cultures at different times moved from barter to money-based transactions. The situation in the capitalism-oriented world today is that a lot of money, control of trade and governance are concentrated in the hands of relatively few people. Individuals or communities that have a lack or shortage of money may find themselves unable to trade upon their time, skills and other resources through the formal monetized economic transactions.

The difference between traditional barter and LETS is that exchanges are not limited to the two people involved in the exchange; instead an account is maintained of credits and debits. ‘Time banks’ are another localized economic system similar in their objective to LETS, but with goods and services equated to hours of work.

The origin of LETS understood in the ‘modern’ sense, appears to have been in Comox Valley, British Columbia. This town of about 50000 inhabitants was left without major employment when the local timber mill closed down in the 1980s due to recession, and the other employer, an airbase, was transferred. A LETS was initiated, which in 7 years, had an annual turn over of 500000 ‘green dollars’, and a membership of 600. The ability to trade upon labour provided by LETS helped the people pull themselves out of the economic shock caused by the departure of the major employers.

In Argentina, following strictures placed by the IMF in the late 1990s and early 2000s, a range of alternatives to the mainstream money economy arose: barter systems, LETS where labour was exchanged, community currencies as well as alternative currencies, which were backed by the provincial governments. These provided liquidity in a depressed economy and allowed people to access food, healthcare and other essentials which may have been difficult due to the depression of the national currency.

These two examples show that LETS can provide stability to a local economy. Since every transaction credits one party and debits equally another party, there is no need to predict the amount of ‘money’ needed in an economy, which is the case in conventional government-backed currencies. Unlike in the conventional economy, in LETS, money does not create more money by interest or usury. It is work, labour, time, skill and enterprise that create the economy. LETS values enterprise and encourages people to trade on their own skills and time.

DeMeulenaere (2000) describes the experience in Argentina, Community exchange networks, parallel/local/alternative currency systems, or whatever name they choose to go by, are a way of identifying and mobilizing the community’s assets. Rather than focusing on what a community is lacking, they identify what the community is possessing, and build on that foundation.

For many LETS participants, its main advantages appear to be the forging and strengthening of social networks. This is true of similar localized economy networks as well. As one of the members of Cornell’s Ithaca HOURS says on their website,

“Mary earned about 35 HOURS selling organic produce at the Farmer’s Market. She bought roofing and computer programming. She’d like us to develop toward a non-monetary society like that described in Sonia Johnson’s book Wildfire. “Money is a tool of patriarchy that dissociates us from one another and so contributes to the spiritual void.” She says HOURS are “a starting point. They are better than federal currency by being local, and therefore seem safe.”

Indeed, Madison Hours states that their primary mission is ‘to promote economic equity’; and that ‘cooperative philosophy and values are integral to the functioning of their enterprise’. For individuals excluded from the formal economy for various reasons, this conscious effort to build on local abilities maybe a very important contributor to economic and social well-being.

As a method of promoting sustainability, LETS would be expected to contribute to reducing the ‘ecological footprint’ of a community by supplying local goods and services. Some LETS have transactions on local food, local compost, trade in second-hand goods etc. But its not clear whether LETS have substantially enhanced local primary produce and manufacture and replaced imports. Consciously integrating LETS with local recycling and composting programmes may provide a way for enhancing this.

Some LETS appear to have been formed by individuals or groups with ‘green’ leanings. Possibly, these LETS have a greater trade in local produce, driven by local choice for such produce.

For communities interested in assessing their own direction of development, an objective look at membership profiles, types of transactions may help in determining the impact of their LETS. The volume and types of transactions in LETS may be used as an important and easily understandable indicator of sustainability of the region. Tools such as ‘Plugging the Leaks’ developed by The New Economics Foundation can help a community identify the economic resources in their local economy and determine ways to use them more effectively.

Some Constraints

Depending on how a LETS has been formed and members recruited, LETS may be inclusive or become exclusive. If members tend to adhere to a particular ideology, or if the LETS has built upon an existing strong social network, it may actually alienate other communities and individuals, negating one of the main benefits of the LETS concept.

Another issue is the ‘employability’ of individuals, or the marketability of their time, skills and services. Those whose skills are already marketable would tend to reserve these for the formal economy. Others, who can’t market these even in the informal and localized LETS would just run up a long list of ‘debits’. Different LETS have different ways of handling such situations, but too many debits would usually mean that the debtor would have to leave the system.

Many countries recognize LETS and community currencies as legal, and transactions are taxable. However in Thailand, a community currency scheme was stopped by the government within a month as it was perceived as a threat to the government backed currency.

Various researchers (Ingleby 1998 and Rowe and Robins, 2000) have reflected on possible mechanization of social/ community processes in LETS, especially when institutionalized. While LETS provides a framework for community development, just like mainstream economic systems, the decision-making in LETS remains centred on exchange activity. Member participation tends to be measured in terms of trading levels. The basic human values that underlay a cohesive community cannot be supplied by a LETS. Insofar as LETS provides a forum for enhanced local interaction and a feeling of dependence, such values may be strengthened.

Though some LETS have faced issues of structure, actual value to community processes and government acceptance, LETS are seen as important for sustainable development as they have the potential to:

  • strengthen local participation and sense of community
  • value goods and services produced by people who wouldn’t otherwise find place in a formal market economy thereby increasing their quality of life and real income
  • reduce the environmental impact of movement of goods (and perhaps even ‘globalized’ services with huge management overheads) delivered across large / global-scale distances

Anyone know of examples in Pune, or other cities in India?

References

Cato Molly Scott (2006) ‘Argentina in the Red: What can the UK’s Regional Economies Learn from the Argentinian Banking Crisis?’, International Journal of Community Currency Research. Vol 10, pp 43-55

DeMeulenaere Stephen (2000) ‘Reinventing the Market: Alternative Currencies and Community Development in Argentina’, International Journal of Community Currency Research, Volume 4

Hepworth Sarah ‘Local Exchange Trading Systems and Impact Assessment – Application Guidance Notes’ on http://www.enterprise-impact.org.uk/ . Accessed on 15 May 2007

Ingleby Julie (1998) ‘Local Economic Trading Systems: Potentials for New Communities of Meaning: a brief exploration of eight LETSystems, with a focus on decision making’ International Journal of Community Currency Research Vol 2

Gran Even (1998) ‘Green Domination in Norwegian Letsystems: Catalyst For Growth Or Constraint On Development?’ International Journal of Community Currency Research. Vol 2

Pacione M (1997) ‘Local Exchange Trading Systems as a response to the globalization of capitalism’, Urban Studies, 34,8, pp.1179-1199

Rowe J and Robbins C (2000) ‘Leading from below: the contribution of community-based initiatives’ in Barton H (ed) Sustainable Communities: the potential for eco-neighbourhoods, Earthscan, London.

Williams C C (1997) ‘Local Exchange and Trading Systems (LETS) In Australia: A New Tool For Community Development?’ International Journal of Community Currency Research Vol 1

http://www.transaction.net/money/lets/ Accessed on 15 May 2007

http://www.ithacahours.com/ Accessed on 15 May 2007

http://www.madisonhours.org/ Accessed on 15 May 2007

http://www.pluggingtheleaks.org Accessed on 15 May 2007

http://www.worldproutassembly.org/archives/2005/04/why_the_local_m.html Accessed on 15 May 2007

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14 Responses to “Local Exchange and Trading Systems”

  1. Nilanjana said

    Sanskriti..It is really nice to read the piece on LETS.Was my favorite subject of SD. Gud work done by you.. only you are making a good use of the course.By the way, have you found any existing practice of LETS in India?

    • Sanskriti said

      Hi Nilu!

      No I haven’t found any examples in India, though barter based economies certainly exist. I suppose ‘sodexho meal coupons’ would qualify as a non-money system. Perhaps some smart self-help groups might have evolved LETS-like systems, or could easily develop one? A potential (action) research topic!

  2. “in Thailand, a community currency scheme was stopped by the government within a month as it was perceived as a threat to the government backed currency.”

    Jct: No economic lifeboats allowed, everyone must stay with the sinking ship.
    Nevertheless, trading time a la JEU, or trading cell-phone minutes, can’t be stopped.
    Best of all, when the local currency is pegged to the Time Standard of Money (how many dollars per unskilled hour child labor) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours.
    U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture.
    See http://youtube.com/kingofthepaupers on growth of the international time-trading network.

  3. LETSystem inclusivity/exclusivity is not a problem when people understand that there can be as many LETS as there are egroups on yahoo and google. One size does not fit all and it was the original intent that there be many. With internet functionality, people can set them up as needed where needed, like groups on any of the social media.

    The other idea that is often missed when discussing LETS is that they are meant to work alongside mainstream commerce so that it is accepted in shops in part payment of sales. When mainstream businesses accept community currencies, they will then have a significant impact on the econoomy, thereby changing import/export patterns toward what communities need, not corporations.

    Current activity can be followed at http://lets.net and http://twitter.com/cvcw

  4. Civicus said

    Just a quick response to a very thought-provoking post.

    I think one of the major differences between any barter-based economy, whether traditional or modern (such as the LETS example) and a monetised economy is that in the former (to put it in your words) “money does not create more money by interest or usury”.

    This militates against the fundamental principles of modern capitalism, and it would not be in the interests of any State to allow a barter-based system to survive beyond a very limited footprint area.

    More importantly, a barter-based economy can work fairly and equitably as long as the exchange is confined to demand-led goods and services. In a world in which, for nearly six decades, economies have become increasingly post-industrial and markets have increasingly become masturbatory stimulators of demand for what is on supply, the only hope for LETS and similar mechanisms is for the megacorp-government-economy nexus to collapse under its own contradictions. Maybe the present global recession is a blessing in disguise. 😉

    • Civicus said

      Postscript:

      After writing the above comment I noticed the “possibly related posts (automatically generated)”. Glanced at the one titled How to Succeed when the Empire is Failing. Worth a read. I highly recommend it to anyone who has the patience to read it. Some of the ideas may seem unpractical, but we owe it to ourselves — and to democracy — to engage in anarchic and subversive measures to protect our interests from the predatory sharks.

      • Civicus said

        Sanskriti,

        I have recently discovered that the contents of the “possibly related posts” feature are not permanent, so it seems futile to mention it in comments (which I have done above). Is there any way that I, as a reader and commentator, can insert it as a link in my comment? I know I can copy-paste the whole URL, but if I just want to give a link from a word like “this” or “here”, what is the protocol. Pardon my ignorance.

      • Sanskriti said

        Civicus

        Not able to incorporate editing tools in the Comments box 😦

        Sanskriti

      • Civicus said

        I am not sure I know what “editing tools” means, but I thought you did include what I am referring to in one or two of the earlier posts.

      • Sanskriti said

        Hi Civicus

        When I (as the author of the blog) create or edit posts or comments, I get buttons for making text bold, italics, and also for inserting hyperlinks the way you suggest. So for instance I can insert a link like this

        However, these tools or buttons don’t appear for visitors, and I haven’t yet found any settings on wordpress or widgets that enable these. So you are stuck with having to type out or copy paste urls, unless may be you get a standard html string and just replace the url and text everytime.

      • Civicus said

        Hi Sansytai 🙂

        Your link led me to http://uncyclopedia.wikia.com/wiki/Main_Page. Off-topic but very entertaining. A nice beginning to the day. Thanks.

  5. “hope for LETS and similar mechanisms is for the megacorp-government-economy nexus to collapse under its own contradictions. Maybe the present global recession is a blessing in disguise.”

    Jct: There’s nothing like a sinking ship to make people think more fondly about their lifeboats.

  6. Jibok said

    You are doing great progress with SD….
    Well I still found prevalent barter system amongst tribes in Dantewada and two tribes in Arunachal, but its actually its not LETS

  7. Sanskriti said

    People who read the LETS article and the responses, may be interested in

    http://bankinformation.wordpress.com/ – Interesting blog which concisely covers a lot of territory in relatively simple terms (Shared by Civicus)

    Material on Participatory Economics
    http://en.wikipedia.org/wiki/Participatory_economics
    http://www.zmag.org/znet/topics/parecon

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