Community Exchange System

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The Community Exchange System is an Internet-based trading network^[1] which allows participants to buy and sell goods and services without using a national currency. While the relatively new system can be used as an alternative to traditional currencies such as the dollar or Euro or South African rand, the Community Exchange System is a complementary currency in the sense that it functions alongside established currencies. It is international in scope.^[2] It does not have printed money or coins^[3] but uses computer technology to serve as an "online money and banking system" and as a marketplace.^[4] It is an advance from an arrangement in which either one good or service is exchanged for another good or service, or commonly called barter, since it uses a digital unit of value.^[3][2] While there are reports that the system is growing, in 2011 the system handles only a tiny fraction of international world commercial activity.

Background

The South African Rand is a traditional national currency with paper banknotes and coins; in contrast, money in the Community Exchange System is virtual and held as a number on a community database.

In contrast to a bank which has a physical structure such as a building, the Community Exchange System has no buildings but rather is a computer system built around software using extensive databases. Photo: Bank of Albania

While money typically takes the form of a national currency such as dollar bills or euro coins, there have been other types of currencies ranging from simple IOU notes––in which one person declares a debt to a second person in a written document––to more sophisticated programs such as airline miles in which points are accumulated in a side-system as a result of purchases.^[5] And some communities, typically remote ones, have instituted what is sometimes called a community currency with paper notes such as the Totnes pound in the town of Totnes in the United Kingdom; the idea was to promote local commerce and to "keep money circulating within the town's local economy," according to one report.^[6] The advent of Internet technology has made alternative forms of exchange more viable, according to one report, as databases can keep account of credits and facilitate trading.^[4]

History

The Cape Town Talent Exchange began around 2002.Photo: Cape Town's city centre seen from nearby Lion’s Head mountain.

The system known as the Cape Town Talent Exchange began in 2002 or 2003^[2] in Cape Town^[7] by Ashoka fellow^[8] Tim Jenkin. The abstract unit of currency was called the Talent although there were no physical bills or coins made. The purpose was to bring the advantages of a trading network to destitute persons who were unable to get credit or loans by using traditional national currencies, as well as assist marginalized communities such as Khayelitsha within the city of Cape Town to become self-sustaining.^[9] The initial design was as a local moneyless not-for-profit exchange which was similar in most respects to what is termed a local exchange trading system (LETS) which record members trading goods and services using a locally-created currency called LETS Credits.^[10] But the exchange evolved into a more complex system which took advantage of Internet technology to reduce the costs of administering the system and allowed its promoters to extend it to other places, including areas outside of the borders of South Africa. The software permitted the exchange in one city to link up with similar exchanges in other cities to form a network.

Size

Reports vary about the number of complementary currency exchanges linked up in the network. One report in 2011 suggested that the network consisted of 100 linked exchanges which operated in 15 different countries;^[4] a second report counted the number of exchanges at approximately 300 in 30 different countries.^[3] One estimate was that there were 2,000 members in 2006 with a total of 6,700 members in 50 groups in eight countries.^[2] By 2011, the number of participants in the Cape Town Talent Exchange was estimated to be 4,000.^[3] A report in Time Magazine suggested that alternative forms of money are "growing in popularity" in places such as South Africa and elsewhere.^[4] Since 2003, when the system was initiated, there have been about two and a half million talents traded, which was about 500,000 South African rands, according to one estimate.^[2] One estimate suggested that the total value of local exchange trading systems trades worldwide was one billion South African rands in 2004.^[3]

Method of operation

A person wishing to join can sign up with a particular local exchange via the Community Exchange System website. He or she gets an account and makes an offering.^[3] At this point, the person is considered as a registered member which gives them access to an online community, sometimes described as an online shopping mall which is similar in some respects to a social networking website. The person can then offer to sell goods or services, and as work happens, or if the person sells items or services, their credits accumulate, which in turns allows them to buy things on the exchange as well from participating sellers or merchants or service workers. Generally, each exchange has its own currency or unit of measurement which serves as a recording mechanism and default standard to keep track of values as they are transferred. Most exchanges operate according to principles of mutual credit, time banks, or some even use exchange-specific paper currencies as a portable physical record documenting the electronic credit.

The registered member via the Internet accesses a host server which manages a particular exchange, and this access enables a user to link up with other exchanges.^[4] Generally, there is not a fixed exchange rate between a Community Exchange System unit of value and a national currency; rather, values fluctuate. Database software keeps track of which persons have which amounts of "money".^[4]

And in South Africa, proprietary software keeps track of Community Exchange System (CES) Talents; one ambitious plan is to make Khayelitsha, a vast, desolate township of perhaps 1 million inhabitants near Cape Town, a self-sustaining community.

—report in Time Magazine, 2008^[4]

Generally, members are not allowed to accumulate either too much debt or too much credit on the system.^[2] When a deficit builds up, other members generally will usually stop trading with such a person until the person does more work or sells more items or services; when an individual person's credit becomes too extensive, other members will urge that person to begin spending to bring down this amount.^[2] It is taxed like any currency and a "nation's tax rules apply ... just like national currency."^[4] If a particular member does not have a computer or lacks Internet access, it is possible for a local area coordinator to enter the trade for them into the system.^[3]

Benefits

Advocates suggest the Community Exchange System is a "means of empowerment" for poor people, the elderly, disabled persons or those described as underemployed.^[4] An advantage cited is that a destitute person can begin earning credits by working, since it does not require such a person to first have an acceptable credit history or credit score to qualify for a traditional job.^[4] Regardless of a person's past financial situation, each person's new contributions have exchangeable value based on the worthiness of their contribution.^[4] Proponents claim that it is not essentially different from traditional national currencies in the sense that both types of money are in digital form. Advocate Margaret Legum of the South African New Economics Network claimed that the currency comes into existence only when a trade happens and, as a result, there is no risk of inflation or deflation since "there is no such thing as too much or too little money."^[2] She argued that it was a superior arrangement because no interest was charged and that the system was "transparent" because everybody could see everybody else's balance of credits and debits.^[2]

Legum argued that:

Money is not used as a commodity in itself - to be lent and borrowed and kept out of use. By contrast, the supply of national currencies everywhere comes into existence as a commercial debt to a bank, without reference to whether or not that extra money is needed to match the supply of goods and services.

—Margaret Legum, 2006, in Business Report^[2]

Persons can borrow or take a loan using the system, although generally these amounts are not large, and there are forces pushing persons to not have either a large deficit or a large surplus in their particular account.^[2] And it is international in scope.^[2] Other advantages cited include benefits for the environment,^[4] being good for remote areas without access to traditional banks,^[4] It can be "ideal for launching small businesses or piloting projects without spending cash", according to one view.^[3]

Drawbacks

The network still incurs administrative costs, although with Internet technology, the costs are less than a LETS group. There is a small fee required to help defray administrative costs which is either a one-time fee or else a small "transaction tax in talents" to compensate the system's organizers for their work.^[2] Other drawbacks include being "unwieldy" since money is useful primarily when it is "widely accepted", and for a Consumer Exchange Service to operate effectively, lots of consumers and merchants and employers need to be using the system,^[4] and there are no indications that the system has been widely adopted throughout any particular countries at this point. Interfacing the new currency with a nation's tax accounting can "pose problems"^[4] possibly resulting in accounting issues. Other potential problems include the possibility that a particular exchange may cease operating (so persons with credits built up may lose them), as well as the possibilities for error, fraud, and difficulties with dispute resolution which are problems for any trading currency. One source suggested that an administrative upper-limit ceiling for the number of trades was 700 million; if the system gets more trades than this, it becomes difficult to manage in an administrative sense.^[3]

References

1. ^ George Monbiot (19 January 2009). "If the state can't save us, we need a licence to print our own money: It bypasses greedy banks. It recharges local economies. It's time to think seriously about an alternative currency". The Guardian. http://www.guardian.co.uk/commentisfree/2009/jan/20/george-monbiot-recession-currencies. Retrieved 2011-10-03. "In his book The Future of Money, Lietaer points out - as the government did yesterday - that in situations like ours everything grinds to a halt for want of money. But he also explains that there is no reason why this money should take the form of sterling or be issued by the banks. Money consists only of "an agreement within a community to use something as a medium of exchange"...." 
2. ^ ^{a b c d e f g h i j k l m} "New complementary currency brings out trading talents of locals". Independent Online. October 30 2006. http://www.iol.co.za/business/opinion/new-complementary-currency-brings-out-trading-talents-of-locals-1.739068. Retrieved October 01, 2011. 
3. ^ ^{a b c d e f g h i} "A Wealth of Talents". Mail & Guardian. http://mg.co.za/article/2004-12-17-a-wealth-of-talents. Retrieved October 01, 2011. 
4. ^ ^{a b c d e f g h i j k l m n o} Judith D. Schwartz (Dec. 14, 2008). "Alternative Currencies Grow in Popularity". Time Magazine. http://www.time.com/time/business/article/0,8599,1865467,00.html. Retrieved 2011-10-03. "But alternative forms of money have a long history and appear to be growing in popularity. ..." 
5. ^ David M Rowell (August 13, 2010). "A History of US Airline Deregulation Part 4 : 1979 - 2010 : The Effects of Deregulation - Lower Fares, More Travel, Frequent Flier Programs". The Travel Insider. http://thetravelinsider.info/airlinemismanagement/airlinederegulation2.htm. Retrieved September 21, 2010. 
6. ^ Rob Sharp (May 1, 2008). "They don't just shop local in Totnes - they have their very own currency". The Independent. http://www.independent.co.uk/news/uk/this-britain/they-dont-just-shop-local-in-totnes--they-have-their-very-own-currency-818586.html. Retrieved 2011-10-03. "The town where she lives. Brown, along with thousands of her fellow residents in this colourful south-west retreat, uses Totnes pounds: notes printed and traded locally (and decorated with a sepia depiction of the town's main thoroughfare). The idea for the pound – used in 70 businesses round these parts – was introduced a year ago, to promote links between local businesses while reducing reliance on big business. The aim is to keep money circulating within the town's local economy." 
7. ^ Yaj Chetty (May 17 2010). "Current financial system at heart of global woes". Independent Online. http://www.iol.co.za/business/opinion/current-financial-system-at-heart-of-global-woes-1.698817?ot=inmsa.ArticlePrintPageLayout.ot. Retrieved 2011-10-03. "A number of communities around the world have already organised themselves into "transition towns", where businesses trade with local interest-free currencies and multilateral barter exchange systems, building lifeboats in preparation for peak oil and financial meltdown. A good example of this is the Welsh town of Totnes, where the Totnes pound, is being successfully traded. In Cape Town there is a community exchange system using talents." 
8. ^ "Timothy Jenkin". Ashoka. http://www.ashoka.org/fellow/timothy-jenkin. Retrieved October 01, 2011. 
9. ^ "Alternative Currencies Grow in Popularity". Time Magazine. http://www.time.com/time/business/article/0,8599,1865467,00.html. Retrieved October 01, 2011. 
10. ^ "LETSystems Training Pack", (1990) W.A. Government.

External links

• Community Exchange System web site
• Community Exchange Network discussion forum on Ning
• Community Exchange System discussion forum on Facebook