Local Exchange Trading Systems (LETS) and Community Resilience

Chris Strashok
Published December 12, 2009

Case Summary

Our social behaviours are affected by the characteristics of the money system that we use. Some systems of exchange foster competition while others encourage cooperation. Becoming aware of how our money works allows us to make knowledgeable choices about the money systems we use (Lietaer, 2001). This awareness gives communities the ability to adjust incentives and the structures within which transactions and trades are made, changing patterns towards goals that are environmentally, socially, and economically sustainable (Centre for Social and Economic Research on the Global Environment [CSERGE], 2004).

This case study examines whether the Victoria Local Exchange Trading System (VicLETS) contributes to greater community resilience within the community of Victoria, British Columbia, Canada. It considers whether the economic effects of Local Exchange Trading Systems (LETS) generate the necessary economic diversity and self-reliance needed to increase a community’s resilience (Dale et al, in press). Also, does the social capital that LETS fosters create a greater sense of community connectedness and cohesion? Finally, does LETS change an individual’s patterns of consumption and waste?

Sustainable Development Characteristics

Our current economic system is based on a model of competition for scarce resources with the goal of perpetually growing the economy, often excluding individuals and communities. Ecologically, this economic competition often results in a weakening of environmental regulations to further reduce production costs (Capra, 2002; CSERGE, 2005; Glover, 1999; Helleiner, 2000). This model also encourages society to think only of short-term gains, making it difficult to create changes within our society that counter the social, ecological, and economic stresses society is currently facing (Capra, 2002; Dale, 2001; Greco, 2001; Homer-Dixon, 2006; Kennedy, 2001; Lietaer, 2001; Linton, 1996; Milani, 2000).

Local currencies can be created and used alongside traditional money systems creating greater diversity locally within our communities. This new money can exist in sufficient supply; it stays local and is created by the community members using it to facilitate community relationships and change consumption patterns (CSERGE, 2004; Greco, 2001; Helleiner, 2000; Lietaer, 2001; Meeker-Lowery, 1996; Milani, 2000; Schraven, 2001; Seyfang, 2001a; Seyfang, 2001b). These locally-based and controlled economic systems allow communities to shift the value away from money as an end in and of itself and back to the skills and services that the individuals and communities can optimize, creating strong social networks in the process. This economic diversity also gives the community an opportunity to focus on the regeneration of people, the community and all living systems by re-building local systems of provision. 

Critical Success Factors

Trust is essential in a LET system. For a trade to be successful, attention must be paid to the relationship between the trading partners as well as the item being traded, North (1999) calls this ‘relationship trading’. Although at first this process of relationship building can be slow and time consuming (depending on the size and distribution of the members), in the long run, strong bonds are created that contribute to a strong economic network (Liesch & Birch, 2000). The case study revealed that for an effective LET system, and in particular, the VicLET system, the following factors are critical—communication; trade avenues; and, access to paid resources.

Community Contact Information

Chris Strashok, MA., BSc.
Nanaimo, British Columbia, Canada
Email: c_topher@shaw.ca

What Worked?

Members were able to gain skills using VicLETS that opened up new employment opportunities. A culture of recycling and repurposing was fostered as items were redirected from the landfill and reintroduced into the community. VicLETS is also excellent at creating social capital by creating strong bonding social capital between VicLETS members, particularly for newcomers to the community. This cultivates a spirit of community where opportunities for creativity and spontaneity were introduced. Some interviewees even reported that they felt they were able to participate more fully in life, as a result of their membership.

What Didn’t Work?

Two of the negative effects of social capital outlined by Newman and Dale (2005) are visible within the VicLETS organization: the exclusion of outsiders and excess demands on group members.

Although the exclusivity derived from being a member forms a close knit network of individuals, it also limits trading only to the membership. This exclusivity makes it difficult for the money to move through as many individuals as possible within the community, thus reducing the economic gains of the system (Annen, 2003; Collom, 2005). This exclusivity also keeps the system small. By keeping the system small, the amount of goods and services available are restricted and may be dispersed over large areas (North, 1999). Businesses are also indirectly excluded from participating in LETS since the costs of trying to integrate a cash system with a LETS account are too high for most businesses. Requiring a membership, limited trading opportunities and the high level of effort it takes to trade make it difficult for LETS to scale up and significantly offer a viable alternative to the current economic system.

Running the system and recruiting new members is also left solely to a core group of volunteers putting excess demands on these individuals. Without adequate support, these core members tend to burn out, causing the entire organization to stop working.

Financial Costs and Funding Sources

Because social and ecological costs, normally externalized in the traditional economy, are taken into account for goods and services traded in a LETS and there is a  lack of quantitative measures for these contributions, it is difficult to determine the costs and benefits of participating in LETS. However, enhancing local economic diversity and providing an economic alternative, promoting self-reliance, building a network of social capital and cohesion, changing the scale at which economic, social and environmental decisions that affect the community are made, and cutting material consumption are vital to increasing the resilience of communities, making them capable of responding to external shocks and pressures of our globalized economy (Dale & Newman, 2006).

Research Analysis

Information from this study was obtained by interviewing 10 members of the VicLETS organization. The interviews were open-ended, semi-formal conversations about LETS, social capital and local consumption. The intent was to learn how VicLETS contributes to the economic and social capital of Victoria, as well as the community’s resilience.

Detailed Background Case Description

Money is one of the most useful inventions that humankind has ever made. It helped us overcome the limits of the barter system and allowed us to exchange goods and services across the world, while also specializing skill sets (Kennedy, 2001; van Arkel & Peterse, 1998). Now, not everyone has to build their own house, grow their own food and make their own clothes to meet the basic human needs of food, shelter and protection from the elements.

Currently the entire world, in spite of the many cultural and social differences, is organized around a common set of economic rules (Capra, 2002), created for the single purpose of making money while creating a state of scarcity and encouraging competition (Capra, 2002; Kennedy, 2001; Lietaer, 2001). The result is a system where people are competing for scarce resources with the goal of perpetually growing the economy, excluding individuals and communities.

Fortunately, there is room within our society for additional currencies to be created and used alongside traditional money systems to create balance within our communities. This new money can exist in sufficient supply, stay local and be created by the community members using it (CSERGE, 2004; Greco, 2001; Helleiner, 2000; Lietaer, 2001; Meeker-Lowery, 1996; Milani, 2000; Schraven, 2001; Seyfang, 2001a; Seyfang, 2001b). While these currencies may be less efficient from a purely economic point of view, they are more holistic because they incorporate social and environmental factors as well (CSERGE, 2004; Helleiner, 2000).

According to ComplementaryCurrency.org (n.d.) there are currently 139 community currency systems operating around the world. LETS are the most abundant community currency model within the 32 models operating world wide (ComplementaryCurrency.org, n.d.). LETS works as a cashless trading group that is usually run by the members on a volunteer basis. Members trade goods and services among themselves and report the transactions to a central administrator that debits the purchaser and credits the seller. There are usually no limits on these accounts and no interest is charged on negative balances or given to positive balances. In this system it is just as respectable to be on the minus side, indicating work created in the community, as the plus side, indicating work contributed to the community (Milani, 2000).

The LETS examined in this study is the Victoria Local Exchange and Trading System or VicLETS, located in Victoria, British Columbia, Canada. VicLETS has been operating since 1983 and members trade goods and services directly using ‘Green Dollars’. There are currently 47 member accounts open in the system who can publish offers and requests of goods and services on the organization’s website. The goal of this organization is to manage, facilitate and promote an alternative local economic system of trade and exchange.

At its simplest, a LETS is a mechanism for facilitating trade that also focuses on building community and social cohesion (Seyfang, 2001b). The main premise of a LETS is that there are many people in society that have needs and wants and the ability and desire to work, however, this supply and demand is not matched due the shortage of national currency available (Williams, 1997). A LETS puts the needs and skills of a community first and then provides a method of exchange to facilitate the bringing together of the two (North, 1999).

In order to create the capacity to deal with complex issues, communities need to foster diversity and self reliance for processes at multiple scales and build a buffer into the system. A LETS allows the community to create an economic buffer by keeping the community energy and social capital within the community. This local circulation of money (or energy) buffers the community from economic shocks by reducing dependence on distant places for goods and services, making the economic space more manageable (as compared to the global economy), and bringing the community together by encouraging cooperation among community members (Benefits of Localization, 2007).

In addition to strengthening the local economy, a LETS promotes the goal of creating strong social networks within communities. The sense of community is created through the trading process. As members meet personally to make transactions, they increase the number of their community contacts, and widen their social network. Personal contact allows members to recognize the abilities and diversity found within their community (Caldwell, 2000; Soder, 2008). This combination of strong social networks built on reciprocity and trust is identified as social capital (Dale & Newman, 2006; Newman & Dale, 2005; Newman, Waldron, Dale & Carriere, 2008; Soder, 2008). Generating social capital benefits VicLETS members through the formation of trust, new friendships and increased social interactions within their community. By creating a diverse network of people, organizations with strong social capital are able to draw on this resource to achieve their goals. However, this study shows that only linking social capital is generated within this community, limiting the effectiveness of the organization for making broader change within the community.

By refocusing our energies with tools such as LETS to build intentional local communities, information, knowledge and wealth are distributed throughout the community, giving the community members the ability to create wealth and share in the decision-making process (Doppelt, 2003; Lietaer, 2001). This is a significant step from an ecological standpoint since the supply of local currency grows only when it is matched by an exchange of real goods and services. This moves the focus to qualitative growth, rather than quantitative, and reconnects communities to the ecological constraints faced by our real economy (Helleiner, 2000; Milani, 2000; Seyfang, 2001a).

Finally, the adaptability and flexibility communities require to build resilience have been locked up in governance systems that centralize information in a command and control structure placing the decision-making powers in the hands of a few so called experts. Our monetary system is an example of this. The use of such a system has locked us into a model that places our focus on either economic sustainability or environmental sustainability, but not both (Lietaer, 2001). However, these do not need to be conflicting or mutually exclusive goals. A LETS allows communities to shift the pattern of governance away from a command-and-control model (central banks) to a combination of local, national and international community networks.

However in order for any LETS to be effective, and for trade to flourish the following aspects need to be addressed: communication; trade avenues; and, access to paid resources.

Communication in any organization is vital to its success and is a central element of community networks (Capra, 2002). In a LETS, it is this communication that sets the social structures allowing trade to happen, and creating social capital. The main avenues of communication in a LETS are through communal gatherings such as potlucks or trading circles. These gatherings are vital to the health of any LET system. Not only do they bring members together in one location to sell their goods and services, but they also facilitate face-to-face connections, which foster the creation of social capital through community connections.

There also needs to be avenues for trade to occur within LET systems. Potlucks and trade circles play a major role in facilitating trade, however, there needs to be avenues for trade outside of these events. Other useful tools that VicLETS puts to use are electronic bulletin boards located on the organizations website, and regular newsletters. These tools provide opportunities for members to advertise their goods and services, to share information, and create awareness around the group's skills and talents. Something that other LETS' groups have done is to highlight stories of successful trades, which helps to build trust within the system and shifts the perception that individuals can only do a job if they are part of an organized professional group.

Finally, there needs to be someone available to put time and energy into the VicLETS initiative. Since VicLETS is run on a volunteer basis this can be a challenge and usually leads to volunteer burn out. In order for VicLETS, and LETS in general, to thrive, there needs to be hired staff paid in either Canadian dollars or a mixture of community dollars and Canadian dollars. Making the positions paid allows individuals to commit more time and energy to the positions (Williams, 1997).

The LETS is one tool that communities can use to shape their own self-reliance and re-value human activities that are essential to building sustainable communities and ecological economies (Milani, 2000; Schraven, 2001). Imagine earning and spending community dollars at local businesses for providing valuable community services, using a LETS to reuse and recycle items while connecting with other community members, supporting local farmers while accessing fresh food, or creating space for local businesses to thrive. These are some of the possibilities open to communities when diverse networks of open, adaptable community currencies are applied. Resilience is created through relationships, relationships we make with each other and the relationships we make with our environment. “A local currency is not simply an economic tool; it is also a cultural tool” (Swann and Witt, 1995, pg 10).

Strategic Questions

1. How can small pockets of strongly bonded individuals contribute to sustainable community development?
2. How can the ‘agency’ of an organization like VicLETS be turned into the necessary action required to manage these local monetary structures and build bridging networks within the community?
3. How are consumption patterns being changed with a LET system?
4. A LETS is a governance structure that allows a community to control their money and trading relationships. What are some other governance structures that can be brought back to the individual level and how?
5. What are some of the ways that the money we use affects the daily decisions that we make?
6. How can businesses be engaged in local currency initiatives?
7. What are other ways that communities can foster community resilience?

Resources and References

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