What Are Local Exchange Trading Systems?

Local Exchange Trading Systems (LETS) are locally organized, economic organizations that allow the exchange of goods and services among group members. The groups use a locally created units of value as currency which can be traded or bartered in exchange for goods or services. Members of LETS typically view the systems as organized and cooperative schemes that maximize purchasing power while benefiting members and the community.

Key Takeaways

  • Local Exchange Trading Systems are a type of bartering system in local communities.
  • The LETS movement reached its height in the 1990s.
  • The movement is based on five key governing principals: cost of service, consent, disclosure, equivalence to the regional currency, and interest-free credit.

How Local Exchange Trading Systems Work

The local exchange trading system traces its roots to 1983, when Michael Linton came up with the term. When Linton started the Comox Valley LETSystem in British Columbia, Canada, he designed it so members could manage their own currency system as an alternative to that of the federal government.

This organization between members would allow them to participate in the local economy even when they lacked traditional currency. Essentially, members would earn and spend credits by doing business with each other.

LETS are based on five fundamental governing principals:

  • Cost of service - administrative costs are recovered from members accounts;
  • Consent - no one is compelled to trade;
  • Disclosure - all account balances and turnover are visible to all members;
  • Equivalence to the regional currency - local dollars or scrip are nominally held equal to Canadian dollars (or another local currency);
  • All interest-free - debits incurred are not interest bearing debts and credits accrued are not interest earning assets.

These ideas—along with general guidelines such as membership fees, detailed logs of transactions, and member directories—are intended to allow for an organized and well-run exchange.

Members are given an account, and listed in a directory of services that are both offered and required in exchange for the LETS scrip, known as green dollars. These green dollars trade at par with federal currency within the LETS, but are never physically deposited, issued, or exchanged. Instead, they are solely units of account, so when someone completes a service for another member, their accounts are updated with the corresponding value.

Transactions don't necessarily require a nominal exchange of units. For instance, members can repay other members who have performed for them a service by providing a service in return, as opposed to paying for the original service.

Special Considerations

Most LETS groups range from 50 to 150 members, with a small core group who use the system as the basis of a lifestyle. Those core members currently make up the movement. The movement has seen a shift so that the local currency is designed to include voucher systems backed by dollars and time-based currency—a value which is based on time and labor hours rather than actual money. Rather than using a credit or local currency system like green dollars, many local exchanges have started using units of time between members.

The LETS movement, on a whole, hasn't been able to keep up with technology. In fact, the groups to a degree have been unwilling to do so because of a lack of funds and a belief that the internet may decentralize their system.

Many people have difficulty adjusting to this type of money system, which is quite different from conventional currency, which pays interest to savers and charges it to borrowers. A LETS system incentivizes different behaviors since consuming the goods and services provided by others in the present and then delaying reciprocation indefinitely into the future incurs no interest cost.

Example of a Local Exchange Trading System

Let's use a hypothetical situation as an example. Say Mary wants her house painted and John accepts the job. When John completes it, his account is credited with the appropriate value from Mary's account. John can then use those green dollars somewhere else. The system also allows people to spend even when they don't have any credits, making up the value by doing jobs when they can.