Theory of LETS and Timebanks

Theory of Complementary/Community Currencies
This page is under development - amendments and additions to follow - and comments are welcome. Please note that we do not go into technical methodologies here but only deal with the "principles" by which these systems work. Research on LETS in the 1990s found that the majority of LETS trading was in "equal-time". Timebanks avoid confronting the financial system by speaking only about time being exchanged.

How a LETS works

A LETS operates by Mutual Credit (ie currency is created by the members themselves as they transact) in a local currency equivalent to the national currency. A LETSystem is quite similar to commercial barter, but in a LETScheme the organisers work according to a co-operative self-help model. They publish Offers & Wants listings, arrange Events, and share the administrative tasks.

The diagram illustrates the end-point of a series of transactions: Fred does a task for Sue who pays him. Joe sells vegetables to Fred who spends some of his credit. NB the hourly rate may vary. The System Account which funds administrative tasks receives an input from the members in the form of subscriptions, transaction fees or commissions so that the system is self-supporting.

NB In the LETsystem the sum of all accounts - and that includes the system account - is zero. No interest is charged for debit accounts, but a demurrage charge (for static accounts) is a theoretical option - rarely practised because it would require a more robust transaction system than most LETS have. A Community Chest may also receive regular tithing and occasional donations, to support help given to disabled members. The system account is not aware of transactions having occurred until they are recorded in member accounts.

Units

System

Fred

Sue

Joe

•

zero _________________

10
20
30
40
50
Units	System	Fred	Sue	Joe

How a Timebank works

The Timebank rewards members who do good deeds for themselves or the Community with Time Credits. Terminology is a little confusing here. The BBC Timebank issues a fiat currency expressed as hours to reward volunteering. The Timebanks UK model rewards members for engaging in community, teaching or learning activities, but also encourages "give and take" between the members: a paid "broker" responds to requests from members and matches them to those offering help.

The diagram describes the same set of trades as above, in a modifed way: When Sue needs help she calls the Broker who arranges for Fred to do the task and later transfers time-credits to his account from her account. In theory Joe can't sell his vegetables as there is no way of recording their value, but if the Timebanks issues "vouchers" these begin to accrue a monetary value.

No system account is needed as the administration is paid for by external funding. Time-credits are created as required but require some form of "authority" to organise and approve the activities. The activities of members are known in advance to the Timebroker, and the organisation takes care over issues of identity, police-checking, insurance, access to vulnerable members, and keeping a record of what has taken place.

Hours	Fred	Sue	Joe

5
4
3
2
1

zero______________

1
2
3
4
5
Hours	Fred	Sue	Joe

VARIATIONS of the LETS Model
LETSystems take transaction fees, either flat-rate or commission-based, and management is non-representative. LETSchemes take regular subscriptions and are co-operatively run. Another option is demurrage (levying inactive accounts). LETS may have a mixture of these methods. Administration may be centralised or devolved using web-transactions. Passbooks and/or vouchers may facilitate face-to-face transactions.

SIMILARITIES between Timebanks and LETS
Many LETS members prefer to work for an equal rate of pay and many schemes are either constituted on this basis or suggest a standard rate to be used as required. Some schemes have "brokering" as one of the administrative tasks which can be devolved by type or location.

Combined Time-LETS Models
A number of LETS organisers are now working on combining LETS and Timebanks as described above. The new models range from simply working side-by-side and sharing resources to truly integrated hybrids. We are particularly pleased to hear news of such schemes so that we can build up some "road-tested" options.

See Comparison with Mainstream Banking - paper in draft