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Money, according to Michael Linton, the developer and populariser of the most widely-used local currency system LETS (an acronym for "local exchange trading system", although some people substitute "employment or "enterprise" for "exchange"), is "the unreal stuff that we swap for real stuff" and, in his well-practised public address, he goes on to highlight three major differences between national currencies and their local cousins 3. The first is that a national currency is acceptable anywhere - in some cases all over the world - while a local currency can only be used in a very limited geographical area. This restricted acceptability is a plus rather than a minus factor, he explains, because the smaller the system, the sooner any spending power introduced to it by a member is likely to find its way back to him or her in the form of increased demand for their goods and services.
"If you spend money in the national system, it has gone. The individual's spending power has no effect on the overall level of demand and on the ability of other people to trade with him. On the other hand, in a local currency system, if you buy from a fellow-member, his spending power is increased and, directly or indirectly, the extra purchases he makes are likely to increase demand for whatever you are offering. The smaller the system, the sooner your money comes back. Spending money in a small local currency system is like eating bread in a hammock and trying to brush away the crumbs: they just keep coming back."
The second key difference is that national currency is always scarce because its supply is deliberately restricted for fear of inflation whereas, since a local currency is created by people doing things for one another, its supply is always adequate for their needs. All LET schemes create money by allowing, indeed encouraging, their members to go into interest-free debt because it is only if one member runs up a deficit by buying another member's goods or services that the other member can move into credit. At any time and in every LET system, the total of all the accounts in credit will equal the amount the rest are in debit and, if everyone trades so as to bring their account back to zero, all the purchasing power will disappear. Some systems such as the first attempt to start a LETS in Totnes, Devon, failed because members were so reluctant to run overdrafts that they were never able to trade at all. "If you are prepared to do something other people want in the national system the money will not necessarily be there for them to hire you but, with LETS, it will" Linton says.
The third difference is that as the national currency comes from outside the community and is in short supply, it can be used by those with a lot of it to gain power over those without. A local currency, on the other hand, can never be an instrument of power and domination because no-one is ever desperate to get it: they can simply make their own. Consequently, although a person may have a lot of local units in his account he cannot avoid having to persuade a heavily-indebted member to work for him because, as no interest is payable on overdrafts, the only pressure the indebted member will feel to do so will stem from his sense of obligation to the other members of the group to return the equivalent of the goods and services he has had from the system within a reasonable time. If he dislikes the other member, this might well over-ride his wish to fulfil his commitment to the group as a whole. In LETS, it is the local-units rich member who is in the exposed situation rather than the indebted one.
Linton encourages LET systems not to place formal limits on the extent to which members can overdraw, suggesting that they should rely on group pressures and gentle advice from an active co-ordinator to prevent members from becoming so heavily indebted that they despair of ever meeting their obligations and cease to participate. Although many schemes have not taken this advice and have imposed limits, it is certainly possible for a system to operate satisfactorily without them because if a member withdraws leaving a badly overdrawn account behind him, no-one in the system suffers unless a crisis of confidence causes the system to break down. All that has been lost is the goods and services which the missing member would have supplied to the group as a whole if he had discharged his obligations before his departure and since those goods and services can be supplied just as well by a new member as by the old one, so long as the system keeps recruiting and trading, nothing is lost. Every member who supplied the defaulter has been paid.
Provided they are kept small enough, LET systems can be nicely self-regulating. In many places, members get a bank-account-style statement of their account each month, showing the cheques they have written and lodged. They also get a sheet showing the state of every other member's account so that anyone who feels that another member is drawing rather too much from the system can decline to do business with them. In other words, each member has the power of sanction over every other member's descent into the red. However, once the group gets too large this type of control becomes less effective. Because of this, and the benefit of having one's own LETS spending come back quickly in demand for one's own goods and services, many people think that five hundred might be about the maximum desirable size for a LET system.
Linton's views on size can be confusing. On the one hand his seminars stress the advantages of small scale and present the vision of a future in which towns will have several systems, some of which will operate in particular districts areas while others will be based on churches, sports clubs and other organisations and draw their members from a wider area. Most people, he thinks, would be members of more than one system. On the other hand, the last time I met him he was hoping to arrange for his consultancy company, Landsman, to undertake the setting up of a 3-million member system in Sydney, Australia, on a profit-sharing basis. When this project failed to get beyond the proposal stage, he tried to start a massive system in Manchester and made himself unpopular with some LETS enthusiasts in the area, some of whom disliked the fact that a considerable amount of national currency was being invested in the project on which it was hoped that there would be a commercial return. However Linton insists there is no inconsistency because all sizes of systems have their role like gears on a bike.
The biggest LET system in the world at present, and the one which Linton says is the best he knows, is that operating in Katoomba and other small towns strung along the road and the railway line to Bathurst as it passes through the Blue Mountains about forty miles from Sydney. It was started in February 1991 and by the end of 1993 it had 1,000 accounts representing perhaps 1,200 people as not all the accounts were individual ones. About 70% of the accounts were classified as active, having traded more than 100 Ecos (an Eco is regarded as equivalent to an Australian dollar) since they were opened. "In a typical month we process more than 800 transactions worth more than 40,000 Ecos" Peter Furnell, one of the early members, told me.
So large has the number of accounts become, in fact, that in mid-1993 the decision was made to post each member's statement out quarterly rather monthly. "That seems often enough for most people" Furnell says, "and it enables a new issue of Green Pages, the directory of all the services our members offer, to be posted in the envelope as well." To supplement the directory, the group also publishes a weekly bulletin, a single A4 sheet printed on both sides which lists goods which members have for sale and news about the system. This is distributed to pick-up points in shops and pubs throughout the towns. "For a lot of things, you just can't wait until a new edition of the directory comes out" Furnell says.
The system's rapid growth - after its first nine months it had 120 accounts so roughly 400 people must have joined in both 1992 and 1993 - has meant that it has become much less personal. "People no longer feel that they know everybody or that they could do so. That's a loss. They now say 'LETS should do this' or 'LETS should do that' rather than 'We should do it'" Furnell comments. There are no signs that the system has suffered in other ways, though. In particular, no-one has abused the system by running up large debits and putting nothing back. As at September 1st, 1993, 2% of the accounts were overdrawn by more than 1,000 Ecos, but all of the holders had traded more than 2000 Ecos during the system's life. "We do have a E2000 limit on overdrafts but its not enforced very strictly" Furnell says.
To overcome the increasing anonymity of the system, Kaiya Seaton, the co-ordinator of the Development Group, says that they intend to turn it into a 'multi-LETS' by encouraging the formation of sub-groups in each of the towns they cover, with each group issuing its own newsletters and trading as far as possible amongst themselves. She adds that, when new systems have set up in neighbouring areas and suggested ways in which their members can trade with those in the Katoomba system, she has discouraged them from doing so: "I told them: 'Don't trade with our system as it will cause you to lose your own."2002 Update by Caroline Whyte
The Katoomba LETS system, officially known as Blue Mountain LETS or BMLETS, experienced a "golden" time around 1996-97. Membership peaked at 1000+ people, and the system was administered by an elected membership committee which had a central office to handle all transactions.
Some problems began to arise in 1997 when BMLETS incorporated as a legal entity. Michael De-Campo, who has been involved with the system from the early days, told me in an e-mail in August 2002 that the incorporation took place "in order to gain some government grants, get tax sorted out and have Public Liability Insurance available". The flip side of incorporation was that the system now needed to have official and exact record-keeping, monthly meetings, and additional funding to function as an incorporated entity.
The extra funding was not a problem at first as there were so many members, but became one when membership began to decline after a couple of years. De-Campo lists a number of reasons for this decline, among which were: the fact that the population of the Blue Mountains area tends to be rather transient, with people moving away after a year or two, the lack of a feedback or mediation system for dealing with dishonest or shoddy trading, and the difficulty caused by volunteers' having to "hold it all together", ie keep complicated records, recruit new members and hold events.
Another problem was caused by the need for office space. With incorporation, there was a need for a larger office than previously, with more equipment. After memberships began to decline, it became impossible to maintain this expense and the office was moved into a private home. DeCampo writes that "this was to be the first of about 5 different moves..as members could only tolerate having an office in their house for so long...usually about 6 months or so. However these moves meant that access to the local office was becoming more difficult for people who had no transport." Memberships declined still more. The consequent decline in funding meant that the newsletter had to be left off at various locations rather than posted, and this meant that fewer members received it as many people did not get around to picking it up.
Another problem then arose. De-Campo writes that "there emerged an imbalance between those that held a large negative eco account (up to 3,000 ecos...a limit set earlier on) and those who had a large positive eco account (many of whom were local businesses trading with a 10% eco component...as well as ordinary members). The members with the positive eco account complained that they could not spend their hard earned ecos! Membership dwindled again as a consequence."
"By mid 2001 (he writes), the annual meeting came up...not a single person put forward for any of the positions. Due to the laws of incorporation, this meant that BMLETS had to de-incorporate and cease all business/trading. The members who were present at this "crisis" meeting voted to de-incorporate and then followed on with what other possibilities could emerge. A handful (5 or 6) of die hard members continued to meet for about 6 months."
Since then, he writes, there has not been much happening. "Some of the younger, keener ex-members have also left the mountains. Many of the longer term members have moved onto other fulfilling projects. September 11 has shattered many."
He believes that many of the record-keeping problems could have been alleviated by the adoption of a zero-balance-account system, such as is described in the Time Dollars website, and also by the use of book-keeping software. After de-incorporation, some people had the idea of simply keeping their own individual records of transactions, but this hasn't happened in practice so far. De-Campo comments "I think people feel safe in a kind of system, although there are still a few ex-members who help each other out, out of friendship really".
However, with the November 2000 designation of the greater area of the Blue Mountains as a World Heritage listed place, the local government has set up an agenda for the Blue Mountains to become fully sustainable within the next 25 years. De-Campo writes "there are many opportunities here that will emerge, I feel, in the next 2 or 3 years...so keep your fingers crossed and wish us good luck!"
He adds that "the LETS system did work fantastically here...my feeling is that for something to really last and take root in a place, it needs to emerge from the heart / core of the community and be driven by everyone at all levels. Then you can be sure that that kind of dynamism sustains itself as well as the "system" it exists for. It is still working well in some smaller rural communities; see www.lets.org.au."
Michael Linton is currently focusing on the development of a type of LETS called Community Way. He describes Community Way as being intended to provide a gentle introduction to LETS for communities that are interested in experimenting with local currencies but don't yet want to plunge into development of a full-blown LETS.Community Way has three groups of participants: local businesses, community groups, and ordinary people. Signed-up businesses make donations in local money to community groups of their choice, who thereby acquire badly-needed funding. The community groups can then use the money in a variety of ways: they can spend it in the signed-up businesses (who would undertake to accept local currency for a certain percentage of transactions); they can use the money to top up wages of employees; or they can exchange the money for Canadian dollars with ordinary people. Ordinary people would have an incentive to exchange money because they would know that by doing so, they are helping the community groups, and they would have the added benefit of being able to spend the local money in the signed-up businesses.
The websites at Community Way and Wildfire Community Currency contain information about Community Way projects, as well as general information about LETS. The latter site includes an array of audiovisual material designed to provide a clear introduction to Community Way.
The websites at LETSystems and Open Money also contain information about Michael Linton's LETSystems. The www.j-lets.net website contains information about Open Money (a LETS project) in Japan.
Michael Linton can be reached at 1600, Embleton Crescent, Courtenay, BC, Canada, V9N 6N8. Tel/fax (604) 338 0213 or by e-mail at email@example.com.
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