= LETS is just an IOU network, such that the total balance of all the accounts is necessarily zero. 
From the main Wikipedia article:
"Local Exchange Trading Systems (LETS) and Schemes are local, non-profit exchange networks in which all kinds of goods and services can be traded without the need for money. A LETS network uses an interest-free local credit or currency so direct swaps do not need to be made. A LETS member may earn local credit by doing childcare or computer work for one person, and spend it later on food, hiring equipment, plumbing, or carpentry with another person on the same network. A LETS is sometimes also referred to as a Mutual Credit system." (http://en.wikipedia.org/wiki/LETS)
1. Keith Hart:
"LETS, meaning ‘Let’s do it!’, but later elaborated as Local Exchange Trading Systems, began in British Columbia in 1982-83 at the initiative of Michael Linton. This was in response to a temporary downturn in the local economy because of reduced demand for the defence industry and provincial government finances. Since then the LETSystem design has spread through the English-speaking countries and beyond, to France, Germany, Japan and Argentina. Many thousands of people have joined LETS systems which until now have generally been independent of each other. Most communities and even nation-states depend heavily on imports and exports and their internal economy has a weakly developed structure. Community currencies, on the other hand, sustain self-regulating economic networks allowing members to issue and manage their own money supply within a bounded system. As such, they may be conceived of as a way of closing off local communities from the market economy; but Linton has subsequently emphasized the need to integrate these circuits into existing commerce.
In LETS, people, businesses and organizations open accounts in one or several systems, with the unit of account, often named distinctively for local cultural resonance, made equivalent to the national currency for ease of calculation. Member accounts start at a zero balance with no deposit of normal money nor any requirement to buy before selling. No interest is paid or charged on balances.9 There is a register of members (which would normally include businesses as well as individuals and organizations), sometimes listing the services they offer. Payment for goods and services may be in some combination of local and national currency, with only the former being registered in the circuit. Transfers and balances are recorded by a registry which is a virtual bank with no ‘real’ money. Minimal administrative expenses are recovered from member accounts in community currency on a ‘cost of service’ basis. There is never any obligation to trade; and, if desired, members may know the balance and turnover of other members. In the latest stage of the technology, these transactions are recorded off-line on smart cards capable of registering a plurality of currencies and then communicated card-to-card via the internet. Any existing bank could perform this function for a large number of such networks, but they do not.
Each individual member listed on the common register issues the currency whenever the balance of their exchanges drops below zero. In doing so, they make a promise to honour their commitment, acknowledging the gift of goods or services made in return. At any moment, the totality of exchanges sums to zero. These multiple-issuer currencies are more robust than the conventional, single-issuer variety in that the ability of members to trade is not diminished by the disappearance — by default, migration, death or whatever — of accounts with substantial negative balances. Even so, trade can dry up if some members accumulate significant positive balances and find little to buy within the circuit. Most of all such a system offers a means of economic empowerment to individuals as members of communities brought together in a practical way through a circuit of exchange with its own medium of communication. This in turn is an education in citizenship of a new kind, where society may take the form of many levels of association, not just those depending on the economic monopoly of the nation-state." (http://www.thememorybank.co.uk/papers/common-wealth)
2. Ivan Tsikota:
"The LETS phenomenon appeared in Canada in the 1980s, in the town of Courtenay, and was initiated by Michael Linton as a response to economic recession caused by the disappearance of two major employers – a US air force base and a timber mill – and consequent liquidity shortage (Pacione 1997). He introduced Green Dollar, a local currency pegged to the Canadian Dollar at 1:1. The initiative spread quite fast, and in the first two years it generated a turnover of 500,000 Canadian Dollars (Peacock, 1997). According to Pacione (1997), the turnover of Green Dollars at the time of his survey was 2 million.
In the 1990’s, the experience spread to other countries, e.g. Germany, Australia, the United Kingdom. In 1998, reportedly, there were more than 1,000 LETS systems in the world (Blanc, 1998). In 2001, this number was between least 1,076 (Taris, 2001), and 2,000 (Greco, 2001). Now it is estimated that there are 1,500 LETS systems operating in 39 countries of the world (LETS-linkup, 2011); Sweden, for instance has four systems registered. Some of the per country dynamics is presented in the Annex 1. In many countries, local initiatives are linked up into a network, e.g. Tauschringe in Germany, SEL in France, LETSLink UK, Red Global de Trueque in Argentina.
The membership in LETS varies from tens to hundreds. Aldridge & Patterson (2002) report average membership in the UK to be 72, whereas in Germany it was estimated at 81 (Schroeder, 2006). The worldwide average size of LETS is around 80 members (Aldridge & Patterson, 2002; Schroeder, 2006). Peacock (1997) argues that such indicators may be misleading, because there is tendency that activities are performed by a small core of members. On the other hand, it may be misleading in the other direction, since one member may represent a whole household.
Turnover: According to Peacock (2006), the largest single existing LETS in 2006 was an Australian initiative based in Sydney, having over 1,000 participants, generating 400,000 Aus. Dollars in turnover. Gross turnover of LETS network in Germany in 2005 has been estimated at €15 million (Roesl, 2006).
Majority of LETS members are women aged 21-59. However, income levels and employment status vary across countries. For instance, in the United Kingdom, most members were socially excluded people with low income and no job (Williams et al., 2001), whereas in Norway a majority of members had a stable income and full-time job (Gran, 1998). It is possible to conclude, though, that ideological reasons play a very important role in joining LETS." (thesis: Increasing Local Economic Sustainability)
LETS systems' major weakness: Debt policing
"Perhaps the best system for keeping LETS accounts evolved in Germany in 1997. In exchange for their annual membership fee, members receive a record book. When they go to work for another member, or sell them something, the other member writes the details and the amount of the transaction in their book, and signs it while they write in the other member's. This means that the balance of each member's account is constantly up dated. The record books are exchanged for new ones at the end of each year and they are checked by the managing committee to ensure that no fraud has occurred.
Besides eliminating centralised account keeping, the German-style record books have the potential to ameliorate a major weakness in most LETS systems. Linton's original philosophy was that it should be left to each member to decide how much indebtedness they could take on. If other members, knowing the state of the member's account, then sanctioned the decision to take on more dent by selling him or her more of their goods and services, that was all right.
This has not worked well, however. Indeed, a major factor in the collapse of Linton's pioneering system after a few year's trading was the high level of indebtedness of Linton's personal account. Nevertheless, many systems have continued to adopt this approach. True, some do impose credit limits but none seems to have found a satisfactory way of ensuring that members do not stay permanently in deficit. As a result, members whose accounts are in credit frequently find their units are difficult to spend because indebted members see little reason, apart from mild group pressure, to go out of their way to earn them. The members in credit consequently become disenchanted with the system and leave. With the German-type record books, however, it would be a simple matter to prohibit members from selling to people whose account-books showed them to be overdrawn beyond an agreed figure. Requiring overdrawn members to get back into credit within a certain time would still be a problem though.
Because of their reliance on these lax informal controls, very few LETS systems have been able to recruit and retain more than 200 active members. This has meant that their economic effects have been small but they nevertheless play a very valuable social network-building role for people on the social and economic fringes of their communities. Bigger, more economically effective systems would require legally enforceable agreements backed by collateral, similar to those adopted by WIR.
By allowing people to trade using monetary units they have generated themselves, LETS systems meet the need that wampum strings, or wheat deposit certificates, met in earlier times. But there are important differences. For example, wampum shells allowed their holders to trade beyond their communities, while LETS systems are used to enable people to trade within them. In addition, LETS systems, like the WIR, have no need to establish the value of their unit by requiring people to do a certain amount of work to produce them. They normally use the value of their national currency unit as their measuring stick, although some systems have experimented with units based on time (for instance, Time Dollars, a community currency system in which people provide each other with care in which everyone's hourly rate is the same ). ). This saves the effort that has to be wasted on producing, (in the case of gold, Yap stones and wampum), commodities that would be unnecessary but for their monetary use. The downside, however, is the fact that indebtedness levels need to be policed, as we have just discussed." (http://www.feasta.org/documents/moneyecology/chaptertwo.htm)
LETS as an ‘honor’ system
"The LETSystem units are information about an individual's position within a trading community. All accounts begin at zero, but nobody needs to earn before spending, because accounts can have unlimited negative balances. This information is disclosed in the network. If someone goes away leaving a negative balance nothing happens. But people could refuse to trade with that person until he or she has put his/her account into better shape. That is why balance and turnover details are available to all the other people who hold an account in that LETSystem.So LETSystem can be considered an honor system. Most of the other complementary currencies (with the exception of Ithaca HOURS) work in a similar way." (http://www.kuro5hin.org/story/2003/8/26/172939/637)
Keith Hart: against the isolationist tendency amongst some LETS communities
"There are many problems with making community currencies work. Their principles are simple and general enough, but inserting them into societies made up of existing people and institutions is always complicated. National monopolies of money still have a grip on our minds and behaviour. The organization of money as capital has grown in strength through the last several centuries. Beyond that, the conventional money form has an institutional logic that has been around for thousands of years, ever since agricultural societies invented cities and states. Shifting popular attitudes to money is difficult. A conflict is building up between large corporations who aggressively assert their own private property rights at the expense of those who would defend the cultural commons. Money, long the main source of exclusive private property, should also be seen as a part of the commons to which we all have the right of open access. The movement from national to corporate power in a context of digital revolution thus opens up a space for people to fight back through organizing exchange and money themselves.
The idea of people making their own money when liquidity fails is an old one. There are numerous historical antecedents for community currencies. These include instruments of credit in the pre-industrial states of Africa, Asia and the Islamic world, such as the hawala system; utopian communities in the 19th century; the Social Credit movement in North America during the Great Depression; and European experiments, such as Gesell’s stamp scrip in the same period. The non-western cases reveal institutions of considerable durability, whereas the modern western examples have generally been short-lived. How can today’s community currencies emulate the strengths and avoid the weaknesses of these antecedents?
Any network can constitute itself as a LETS community by nominating a currency and recording all transactions through a central register. The totality of transactions at any time sums to zero, since the circuit is closed. Anyone can get an account which starts at zero — I buy, I sell, giving rise to a negative or positive balance in my account at different times; when I buy, I make a commitment to the network that I am good for the money I have just issued. The loss of individual members with negative balances does not directly affect the ability of the others to trade, as it does when the supply from a single issuer dries up. The currency itself is simply a virtual measure. It has no commodity value, therefore no price (interest), no reason to become scarce nor to be hoarded. Recent developments, especially in the use of information technologies, have made community currencies a fast, cheap and effective means of carrying out normal commerce. Smart cards registering transactions in up to fifteen currencies, linking businesses and non-profit organizations as well as individuals, allow these circuits to become partially integrated into the market economy, opening the way for the banks to handle LETS business (although none has yet done so).
Community currencies vary in the degree of their integration into the national economy. Other sources of variation include: the monetary measure (whether based on the national currency or on hours of work, for example); the degree of reliance on free labour or government grants; digital or material records of payment; involvement of businesses or exchange of services between individuals only; local or virtual association; forms of leadership and participation; and so on. Many LETS associations are reluctant to band together in case their autonomy is compromised. They form boards and committees, are insular and clubby, often only for the poor. Such institutions are usually time-consuming and dogmatic, with a bias against business and for public grants. Their aim appears to be to get away into a separate world of their own, however small. I favour integration into the national and ultimately the world economy. But this is the stuff of schism in the movement. It is fatal for community currencies to think of each circuit as a stand-alone project. In future, many such currencies, reflecting diverse associations and interests, will collaborate and compete for the public’s loyalty. And food-based currencies would have particular advantages in such a context." (http://www.thememorybank.co.uk/papers/organic-trade/)
Local Exchange Systems vs. non-reciprocal Peer Production
Comment by Michel Bauwens:
"How are the Local Exchange Trading Systems, through which people can trade services and hours of labour, related to peer to peer. Peer production is essentially non-reciprocal: anyone contributes voluntarily and use is open to all. This works fine in spheres of abundance. LETS scheme belong to the gift economy and are a form of exchange. But unlike the market, labour hours are considered equal, and thus the exchange is based on the idea of partnership and sharing. Such peer-informed forms of exchange are ideal for services and probably also for the surviving non-capitalist traditional economies. They will not replace the market however, in the sense that equal labour does not take into account the amount of investment needed to achieve some types of particular labour. Such pricing can take place in a market only."
Key Books to Read
Book: The LETSaholic Twist. By James Taris. 2005
- LETSystems: http://www.gmlets.u-net.com/
- International LETS Groups Directory http://www.lets-linkup.com/
- LETS at transaction.net http://www.transaction.net/money/lets/
- CyberClass: John “The Engineer” Turmel. (www.cyberclass.net/turmel) Links to thousands of LETS currency sites in 57 nations.
- Alternatives: LETS (Running on the ICON Community Exchange System). www.alternatives.com/lets) A link to a manual for use of the Local Exchange Trading System.
Recommended by Keith Hart:
"LETS is sometimes described as an acronym for Local Exchange and Trading Systems, but in the original version, invented by Michael Linton in British Columbia in 1982, LETS meant ‘Let’s do it’. I am grateful for all I have learned from Michael Linton and his associate Ernie Yacub whose work can be visited at www.openmoney.org. The most direct way to learn how the system works is to try the online game, LETSPlay, at www.openmoney.org/letsplay. For a comprehensive review of community currencies, see Thomas Greco Money: creating and understanding alternatives to legal tender, Chelsea Green, Burlington VT, 2001. A good description of how various kinds of currencies work — fiat money, mutual credit, LETS, Ithaca hours etc — may be found at http://transaction.net/money/index.html."