Local Exchange Trading Systems (LETS) also known as LETS systems are local, non-profit exchange networks in which goods and
services can be traded without the need for printed currency. In some places, e.g. Toronto, the scheme has been called the
Local Employment and Trading System.
Michael Linton originated the term "Local Exchange Trading System" in 1983 and, for a time ran the Comox Valley LETS systems
in Courtenay, British Columbia. The system he designed was intended as an adjunct to the national currency, rather than
a replacement for it, although there are examples of individuals who have managed to replace their use of national currency
through inventive usage of LETS.
LETS networks use interest-free local credit so direct swaps do not need to be made. For instance, a member may earn credit
by doing childcare for one person and spend it later on carpentry with another person in the same network. In LETS, unlike
other local currencies, no scrip is issued, but rather transactions are recorded in a central location open to all members.
As credit is issued by the network members, for the benefit of the members themselves, LETS are considered mutual credit systems.
Contention
LETS are generally considered to have the following five fundamental criteria:
- Cost of service: from the community for the community;
- Consent: there is no compulsion to trade;
- Disclosure: information about balances is available to all members;
- Equivalence to the national currency;
- No interest.
Of these criteria, "equivalence" is the most controversial. According to a 1996 survey by LetsLink UK, only 13% of LETS
networks actually practice equivalence, with most groups establishing alternate systems of valuation "in order to divorce
themselves entirely from the mainstream economy." Michael Linton has stated that such systems are "personal money" networks
rather than LETS.
LETS and taxation
LETS is not a scheme for avoiding the payment of taxation, and generally groups encourage all members to personally
undertake their liabilities to the state for all taxation, including income tax and goods and services tax. In a number of
countries, various government taxation authorities have examined LETS along with other forms of counter trade, and made
rulings concerning their use. Generally for personal arrangements, social arrangements, hobbies or pass-times, there are no
taxation implications. This generally covers the vast majority of LETS transactions. Taxation liabilities accrue when a
tradesperson or professional person provides his or her professional services in payment for LETS units, or a registered or
incorporated business sells part of its product for LETS units. In such cases, the businesses are generally encouraged to
sell the service or product partly for LETS units and partly in the national currency, to allow the payment of all required
taxation. This does imply, however, that in situations where national-currency expenditures would be tax-deductible, LETS
must be as well.
Benefits of LETS
LETS can help revitalise and build community by allowing a wider cross-section of the community—individuals, small
businesses, local services and voluntary groups—to save money and resources in cooperation with others and extend their
purchasing power. Other benefits may include social contact, health care, tuition and training, support for local enterprise
and new businesses. One goal of this approach is to stimulate the economies of economically depressed towns that have goods
and services, but little official currency: the LETS scheme does not require outside sources of income as stimulus.
Criticism of LETS
LETS systems often have all of the problems confronting any voluntary, not-for-profit, non governmental, community based organisation. LETS organisers often complain of being overworked, and may suffer burnout. Many schemes have ceased operation as a result. Many of these problems can be overcome through effective community organization and development.
LETS systems, whilst generally appealing to people supporting a general communitarian or environmental ideology, have in
many places managed to successfully translate themselves as social welfare initiatives. There are far fewer systems that
have managed to communicate and translate themselves into a local business initiative catering to locally owned small
to medium businesses. This is generally considered to be an unfortunate weakness of LETS systems to date by the initiators,
as they feel that LETS potentially has the capacity to allow small business to compete on a level playing field with larger
national and transnational business corporations.
A number of people have problems adjusting to the different ways of operating using a LETS system. A conventional national
currency, is generally hard to earn but easy to spend. To date LETS systems are comparatively easy to earn but harder to
spend. The success of a LETS system is therefore determined by the ease with which a person can spend their LETS credits,
and improve their quality of life by participation. Placing difficult arrangements or unreasonable service fees in the way
of LETS members will produce difficulties in the future.