FAQ Overview

Currrent status: Clarifying. Identifying problems solved by LETS

Action Points:

L to write up key points from discussion

G to contact A

OR change APs into questions in a LETS sub category

Summary

The crucial point about LETS (local exchange and trading system) is that it is a mutual credit scheme. They have been around for a long time, many of them grew up in local areas around the world from the 1970s onward

What does mutual credit mean?

It relates to the way the 'money' (if you want to call it that) comes into existence and is distributed
Instead of pre-existing (as in a commodity type money; eg gold) or being magicked into existence by a bank (when issuing credit), the magic of creation happens between traders. In a LETS scheme, it is really simple: when a trade occurs, the balance of the purchaser's account goes down and that of the seller goes up by the same amount

Essentially, the two parties are agreeing mutually that the purchaser is to be trusted with sufficient credit to make the transaction

Unlike a regular bank account, negative balances are considered normal. A negative balance simply represents the fact that an account holder has, at this moment in time, used more of the community's resources than the person has contributed. Somewhere, that negative balance is matched by positive balances in other account(s). The 'money' is a bit like water: it wants to flow from the positive high places to the negative low places because people who have it want to spend it. In theory this is what keeps the economy moving.

One of the most interesting points about this form of mutual credit is the question of where the money comes from. Who makes or issues it? It arises at the moment of a transaction, and is 'created' at the moment of the trade. There is no need for a commodity to back it (the backing is rather the trust involved in mutually offering credit) and there is no need for anyone to issue it
A corollary of this is that there is never any doubt about how MUCH currency should be issued; there is always exactly the right amount in the system to make the transactions that people are wanting to make. There's no need for a chancellor to decide whether to add liquidity to the economy or not. Essentially the users themselves decide this by trading with each other.

Key Points

• Mutual credit scheme
• Market place (real and virtual) are required
• Size of membership: 150 
• coverage (km sq): ?
• scalability: splitting into a new group is recommended at about 150 members
• interoperability

Problems solved by LETS: See tags

I think it should be possible to create a mutual credit system that is based on a more modern technology such as blockchain

(An hours-swapping scheme, or time bank, is essentially the same as Estrelas – it's just that in Estrela Community Exchange we drop the idea that a unit of account is an hour; it becomes something more abstract, more akin to a euro or a bitcoin.)

The question of how to value products/services is very interesting in relation to the idea of a time bank, or hours-swapping system. When we were having discussions and playing games during the Estrela development process, there was quite a lot of backing for an hours system. (Time banks and the like are essentially LETS schemes – they work by mutual credit – but time time as the unit of account.) In the end, though, hours seemed too limited and we thought they'd lead to odd workarounds. One of our core group holding the discussions suggested they might want to exchange eggs using the system. But that begs the question of how many hours there are in a dozen eggs.... We realised we'd EITHER have to ban egg exchanges OR the unit of account (hours) would gradually lose its real-life meaning. So this is one reason for settling on an arbitrary unit of account instead.

Steve

Suggestion: If it is time based then it may be best to keep it to time swaps and not use it to also exchange goods: (Libre)

Most LETS schemes set themselves up as both a 'currency' system and a marketplace. Indeed, Estrelas were like this too; alongside the accounting scheme there's a directory of offers and wants. However, I've always felt a little reluctant to link these two parts of an economy. In my mind, a currency can be (perhaps should be) simply a platform for enabling the exchange of goods and services. Pricing is another matter – and yes, I think the market is quite capable of handling that.

Of course, when Estrelas first came into use, every user wanted to know how much one was worth. Without any trades, there's no market price – so this was an obvious question. So we started by suggesting that € = Estrela. Since there's no exchange mechanism between the two, it is impossible to say what today's exchange rate would be!

S

Did anyone try to game the system? I think the answer to that is "no", except on a sort-of fun basis. The easiest gaming was on market days when we issued tokens. The tokens we used were slices of cork branded with a star symbol (using a branding iron). So of course a few kids came up with un-branded slices of cork and some people presented half-tokens!

S

We did artificially limit negative credit because we thought that might be needed to grow trust in the system, at least initially

In the end, I'm not sure that anyone reached their debit limit. Limiting positive credit would probably have the same effect on the economy, but might be conceived of as perverse for people steeped in the 'normal' money system. (Just like the idea that you could start trading without 'money in the bank' is a difficult concept for many people.)

There is another strategy for this called demurrage, which is a kind of negative interest on positive credit – whereby positive credit gradually wastes away at a fixed or variable negative interest rate. This has been shown in the past to be an excellent way to vitalise an economy. It reduces the demand for the currency as a store of value. (Many people would argue that your store of value – if you need one at all – should be something different from your means of exchange.)

S

Suggestion: Find one item locally that is widely used and agree to adopt the local ccurrency as the means of exchanging for it

Suggestion: Find or setup a local store / supplier that will only accept the local currency in order to help uptake

L

The most obvious limitation that I would see in this type of local currency would be scalability, owing to the fact that it's a closed loop system?

For example, if I want to save for a big ticket item that would push me beyond my credit limit, I presumably have to trade multiple small transactions to get there. In a small local system, this potentially then concentrates the credit in one persons hands. If I then manage to find a vendor willing to accept my stash of credits, it'd then concentrated in their hands.

I'm also wary of systems with no bridges or on/off ramps to exchange for other currency

P

Current status: Gathering knowledge

Action Points: List more specific suppliers, platforms and apps. Defining boundaries between control and anonymity

Summary

This is not financial advice or investment advice

This is a practical list of tried methods of keeping your existing assets under your control, and preserving the value of said assets

For some it's about holding assets completely outside the financial system. Not holding anything that could be confiscated, re-hypothecated or devalued.

Others take a more mixed approach. Still using some systems / exchanges but mitigating the risks

Key points to note

If you do not own the keys and do not have direct access to your assets you cannot truly consider them yours

When using a third party to hold them there is always an element of risk. They may go out of business, close your account, limit withdrawals, be forced by regulation to block your access etc

The value of your assets needs to be protected from inflation, taxation and regulation

The actual value of your assets can change dramatically in extreme times. For example inflation is currently at about 10% per year for many currencies. If you leave your money in a bank account it de values over time. You can buy less with it

Taxes can also reduce your assets. As soon the taxman knows what you have you are subject to bills and changes in tax laws. Tax havens exist for a good reason

Regulation has always been used as a way to control money, be it on where it can be used, how it moves, limiting amounts etc

Llink to 'Basic Financial Knowledge'

Options

When looking at the following options realise that some will suit you and some not, and that is part of the process

The goal is to diversify (spread your assets as much as possible) so that even if one store fails you still have the others

Precious Metals: Silver / Gold bullion

Buying and taking delivery of actual gold and silver. Online supplier: Bullion by post EU:  https://bullionbypost.eu

Gold coins are VAT and capitol gains tax exempt if you buy the correct ones

Jewellery quarters are often great places to go to find someone willing to buy/sell for cash. Look for these places when you travel. Some are now requiring ID to buy/sell but not all yet

Bitcoin (BTC) and other Crypto

Anyone new to crypto has a learning curve to embark on in terms of securing their own private keys, and choosing the right coin to hold

BTC is widely regarded as the 'Gold of Crypto' and a 'Savings Technology', which is why it is mentioned here
Apart from putting some of your assets into BTC you can also consider buying what you can afford to each month, and of course holding it long term

Monero is currently the best known privacy oriented crypto and can be used for smaller transactions as well

You will need a self custody wallet (Cake Wallet for example, an app which can be installed on a smart phone)

Crypto accounts are simple unique addresses, just a string of numbers and letters. To access them you need your private key, and your seed phrase (12 or 24 words)

Wallets will usually create all of these for you but it is imperitive that you record and store safely your seed phrase and your account address. If you lose your wallet you will still be able to set up a new wallet and access your account

Wallets can often send and recieve crypto as well via their own or external exchanges

How do you aquire crypto?

The best way is to buy some from someone you know and trust, directly to your wallet
You can purchase it using your debit cards or bank accounts from brokers, for example Simplex.com: https://simplex.com
You can also buy from exchanges, mostly online

The key thing to remember is that it goes to your wallet where you hold the keys, not a wallet provided by a thrid party service

The question of how much personal information you are giving when aquring crypto (or any asset) is important. The less the better

In the crypto world this is known as KYC (Know Your Customer) or AML (Anti Money Laundering)
If a service wants your passport and photo and full personal details look for another one
Simplex for example only require an email address, but they do get your bank details of course

Fiat Currencies

Currently the strongest currencies recommended are Norwegian Krones, Swiss Franks, and temporarily US Dollars

These can be bought  / exchanged using Revolut digital banking and their app

If you can get physical currency and store it safely (in a fire proof and water proof safe, secured to a floor for example) this is a great option. While cash is still widely accepted it is immediately useable

Real Estate

With careful selection your money can hold or even increase in value, and you have more rights over the asset but...

Keep a careful eye on new regulations and taxes for property owners. There are many new laws in progress on making your home eco friendly which if not met your home could be taken

Similarly, research compulsory purchasing for things like drilling/mining exploration in areas you are considering buying

Problems solved by Alternative ways to store your assets: see tags