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 opening¹ 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 attemptedall without successin 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 Bonus¹ 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 social-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 business 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 businessnamely, 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 businessesthose 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 devaluation¹ of the HOURS in the eyes of community members. The second method used to prevent the creation of wells¹ 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 accountthere 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 social 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 business-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, alternative¹ 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 intertrading¹. 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 suck¹ 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 interlinking¹. 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 get 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 umbrella¹ 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 umbrella¹ 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 registry¹. 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 prime¹ currency, the gm 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 Bobbin¹ 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 umbrella¹ 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 (individual¹ or umbrella¹), 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 intertrading¹ or interlinking¹. These perceptions of multiLETS must be taken into consideration before implementation. In theory, once an umbrella¹ system is in place, there is little need for local administrators. Volunteer effort would still be required to publish the offers/requests¹ directory and to carry out education and awareness activities, however, transactions and account records could be handled at the umbrella¹ level. In practice, this ignores the political realitythe 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 soundnamely 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 transaction 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 flat 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 tradeessentially 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 cost 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 offers/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 pay-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 real¹ trade and busy 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 repaying¹. 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 free 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 teeth¹ 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 black box¹ for LETS practitionersDebit-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?¹so 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 offers/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 free¹ 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 offers/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. Yes, 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 Greenspanthey 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 demurrage¹ 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 stamp scrip¹ system which was intended to increase the velocity of currency circulation by encouraging participants to spend rather than save15. A note, or scrip¹, 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 new¹ 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 createdthey 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 systemessentially, 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, ³this 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 meaninglessprices will still have to be paid in the equivalent to inflationary US dollars. The other option put forward by Glover is to, ³declare 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 poor 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 artificial 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.