5. Developing the LETS system

At a certain stage of growth, perhaps having reached 100 members or so, a LETS group is likely to be interested in involving more local businesses. The ones most likely to want to join will be those mainly serving the same community within which the LETS system operates. Many such businesses will be willing to offer a discount to members of a local association if this provides them with free advertising by virtue of the fact that the association is likely to publicise the members' discount. This discount can act as the starting point for negotiations intended to get a suitable business involved. Supposing a business were willing to offer a 10% discount anyway, then why not negotiate a 20% discount on the cash price if 20% is also paid in LETS ? The business owner might feel that this cuts the cash profit margins by too much, but if the LETS can be spent on goods and services available within the community then the extra turnover this arrangement can be expected to bring is likely to be of more interest. 

Of course by taking a greater share of the local market from competitors, a business involved in using LETS in this manner will be accused of unfair competition, but no-one will be excluding competitors from joining on fair terms. Once they are asking to join in order to avoid losing business it becomes reasonable to expect them to contribute more towards the cost of administration and development. This will result in competition between local businesses by offering a higher percentage LETS contribution to their prices, thereby encouraging trade that stays within the community.

With more people joining and more LETS being traded it is likely that the character of the scheme will change; those who take the small is beautiful perspective to great lengths might feel that the system is becoming less personal and are naturally at liberty to found new smaller LETS groups within the larger community so that the extended-family nature of the original LETS group is not lost. Computer software is already available to enable those who are concerned about this to do just that with little administrative inconvenience.

The larger scheme will need to adapt to these new realities. For the credit circulating within the system to be valued as a useful kind of money, more thought will need to be given towards preventing some members from acquiring more debit than they can (or want to) repay. Within a smaller scheme, people won't do jobs for or supply goods to those who are doing relatively little for others compared to what others are doing for them. The "offenders" will be easily identifiable to anyone who looks at the accounts, but in a larger scheme some members are likely to be less concerned about minding other people's business in this manner so long as they can still spend their credits. In a group which has so many members that the people involved don't know each other, different controls are needed. By this stage the larger group is likely to have adopted a formal constitution which allows for democratic elections for an executive committee, perhaps by postal voting or at general meetings. Experience within other kinds of voluntary associations which try to expand significantly without formal constitutions suggests that these are likely to split into factions. 

Up to this point I have been dealing with known practice. Further expansion will depend on the credibility of the LETS currency which will itself depend upon how reasonable are the expectations that debits can be repaid and whether the accounts have been kept in good order. Larger volumes of trading will require an adequate money supply. This will mean there are incentives for allowing individuals and businesses which have demonstrated that they can generate a steady income to go into debit up to agreed limits, with these limits to be reduced at an agreed rate. Perhaps debit limits could be based on the previous income into the relevant account.

A second method of control might involve weighting the cost of repaying any bad debits disproportionately on those who have obtained most credits from an account which is defined as going into default under the rules of the scheme. This has the advantage of decentralising responsibility for setting debit limits within a larger system. For example, supposing someone succeeds in opening an account under a false identity, buys some valuable jewels from someone else and then departs with no forwarding address, then at some stage this account would be declared as being in default and the member who sold the jewels might then be expected to make good most or all of the credit obtained. A business would then need up-to date and accurate account information (preferably on-line) to help determine a prospective customer's credit rating before deciding whether to take on a large contract or sell valuable goods.

I am not sure if the clause in a LETS member's agreement which prevents someone leaving the group without balancing their account can be enforced under civil law because there has not yet been such a serious default that a group has wanted to take an ex-member to court. It may require a test case before we find out whether this kind of agreement is as enforceable as any other voluntary organisation's member's agreement under contract law. If this proves to be a problem, minor legislative change may be needed.

Eventually there will be a need to secure larger debits on assets such as title deeds or share certificates, both to reduce the risk of fraud and to give new and existing members sufficient confidence in the system to use it to its full potential. This could probably be done in much the same manner as a mortgage is secured on existing assets, the only difference being a need to translate the LETS currency liability into a legal tender liability for the benefit of courts which do not recognise a LETS currency as legal tender for the purpose of discharging debts. The manner in which this translation could be made would be written into a mortgage agreement. This provision would only come into effect in the event of a default on repayments on an interest free LETS debit secured in this manner.

Another important area of development concerns how cheque or direct debit type payment messages are best handled. Small groups can use various methods. Here are the most popular:

  1. Using cheque books with the cheques being sent to a collection address by the vendor.
  2. Expecting the purchaser to leave a message on a telephone answering machine,
  3. Keeping a book for the purchasers to write in their payments at a central place such as a cafe, church or community centre.



    Method b. can be the cheapest and simplest for a small system whose members do not all visit the same place regularly, but it has been found to be less reliable because people tend to forget whether they have left a message on the machine. This can result in entries being made twice or not at all and sometimes messages may be lost due to technical difficulties. Method c. will only be suitable if there is a central point which members visit regularly during the normal course of events. With more powerful computers now being cheap enough, there is interest in developing the software needed to enable tone-dialling phones to be used to input transactions to computer systems connected to a phone line and capable of speaking standardised messages; this could also be used to request account information and statements at less cost than other means.

    Another method of handling automated accounting might involve running a LETS currency from within a standard Bulletin Board System on a computer connected to a modem accessed by other computers through ordinary telephone lines or other networks. This method is only likely to be useful for a LETS group whose members all have access to computers and modems, though it does open up the possibilities for groups to organise and operate a LETS type currency without any geographical restrictions on its membership.

    With larger schemes there is likely to be more interest in authentication of the messages to further reduce the small probability of fraud. Currently the use of either a signature on a cheque or in a book, or a PIN number or password for an automated credit transfer is adequate. One advantage of LETS money is that it is inherently more secure than older currencies, because all payments must go through the accounts and the money only exists within them.

    Technological developments will inevitably result in further improvements: few would object to using a plastic card with their own picture on it and letting a point of sale terminal in a shop display their picture accessed from a central database for comparison. Other future possibilities such as automated voice, face or fingerprint recognition seem less likely to be politically acceptable than the appropriately managed use of public-key encryption technology. This already exists in the public domain, is used by thousands and enables people to transmit messages over public networks which can confirm the identity of the sender and be made unreadable by anyone other than the intended recipient. 

    Version #001 20-12-94

    Written by Richard Kay  rich@driveout.demon.co.uk