The LETsystem

A local currency that works

One of the articles in Governance (IC#7)
Originally published in Autumn 1984 on page 60
Copyright (c)1984, 1997 by Context Institute

A LETSYSTEM, or Local Exchange Trading System, is a new economic organization applicable to any community. It is a self-regulating economic network which allows its members to generate and manage their own (completely legal) currency system independent of and parallel to the federal money system. It offers communities everywhere the tools to stabilize and support their local economy without diminishing their participation in the whole. It allows members of the local community to exchange goods and services on a "green dollar" basis when federal dollars are scarce or unavailable.

The first LETsystem has now been operating for over a year in the Comox Valley of British Columbia, Canada, others have been started in neighboring communities and by October a multi-level system will be operating in Vancouver, BC. By the end of its first year, the Comox Valley system had a turnover of $10,000 per month with 450 members, and was growing at a rate of 12% per month. We project that our system could handle up to 2000 members and a turnover of $1 million per month.

How does it work? Being a member of a LETsystem is as simple as having another bank account. Member accounts hold green dollars, a quasi-currency, equivalent in value to the federal dollar, but no money is ever deposited or issued. All accounts start at zero and members can use green dollars only with other members. If you provide some product or service to another member, your account is increased and his/hers is decreased by the value you agree on. The system is thus always exactly balanced with some of the members in credit and the others in debit.

This creates a local recirculating currency, whose effectiveness is determined by the following arrangements:

  • there is never any obligation to trade
  • any member may know the balance and turnover of another member
  • no interest is charged or paid on balances
  • administrative costs are recovered, in internal currency, from member accounts on a cost-of-service basis.

A LETsystem can be cheaply initiated anywhere. Setup costs are minimal and the operation can be self-supporting financially at the outset even at a fraction of its full capacity. Basic equipment needs are met with a home computer and telephone.

There are several features of the LETsystem that distinguish it from conventional currencies, banks, and credit-card barter systems. Conventional money systems involve the issue of money to a population by some authority. The amount of money issued hopefully matches the productive capacity of the community, yet the management of the money supply has always been, as it is now, a major source of difficulties and instabilities. The volume of money in circulation, its initial distribution and tendency to accumulate, the question of backing, inflationary tendencies, problems of fraudulence and loss, and the simple cost of maintenance are all serious problems.

In a LETsystem, it is the people themselves who create the currency, and do so at the time and place where it is needed. A negative balance means you have issued money to others, not borrowed it from them. No individual is waiting for you to "pay up" and nobody has a claim on you or your assets. It’s not debt, it’s commitment, and you honor it at your own rate.

But what about a person who spends heavily in the system and then is unable, or unwilling, to repay? Won’t the system collapse? This is the question we are most often asked about LETsystems. The answer illustrates the advantages of the LETsystem over conventional money and credit systems.

My commitment, in a debit position, is a general one, to the community as a whole, and a temporary or even permanent inability to recompense hardly restricts the rest of the community, who are still perfectly able to continue trading with each other, using my issued money. They are not waiting (as they would have to if my commitment were a direct loan) for my return of value and so they are not at a personal loss if I am unable to redeem my balance.

And there’s a second point. My inability to meet commitments in the cash economy is often a result of the scarcity of money. In the LETsystem the money I issue never leaves the community. It’s always available for me to re-earn, and since it is not in short supply, it is less likely that competition for it will exclude me from earning.

A large number of defaulters could undermine confidence in the system, but the system is protected by the fact that everyone’s balance is available to all members. A member who attempts to exploit the system by being reluctant to earn or receive green dollars will find it progressively difficult to spend them. Thus the community is able to protect the integrity of its own currency system.

If you would like to find out more about the LETsystem, and how you might establish one in your area, please contact me at Landsman Associates, 479 – 4th Street, Courtenay, BC V9N 1G9, CANADA, or 604/338-0213.