What Are Local Exchange Trading Systems?

Local exchange trading systems are locally organized economic organizations that allow members to participate in the exchange of goods and services among others in the group. Local Exchange Trading Systems (LETS) use a locally created currency as denominations of units of value 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 simply a bartering system in local communities.
  • The LETS movement reached its height in the 1990s.
  • The movement exhibits five fundamental key traits: cost of service, consent, disclosure, equivalence to the regional currency, as well as interest-free.

How Local Exchange Trading Systems Work

The local exchange trading system traces its roots back 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 an alternate currency system 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.

Local exchange trading systems typically exhibit five fundamental traits:

  • Cost of service
  • Consent
  • Disclosure
  • Equivalence to the regional currency
  • All interest-free

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

Members who participate are given an account. They are listed in a directory of services that are both offered and required in exchange for green dollars. These dollars are equal to federal currency, but are never deposited, issued, or exchanged. Instead, they act like credits, 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. That group of aging people currently makes up the movement. But there has been a shift in 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 countries 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, there's been a degree of unwillingness for groups to do so. That's because of a lack of funds and the 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 yields interest to savers and costs interest to borrowers. A LETS system incentivizes different behaviors to mutual credit which has no commodity value and no interest.

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.