Purpose of Local Exchange Trading Systems

A LXT system is a locally initiated, democratically organised, not-for-profit community enterprise that records the transactions of members exchanging goods and services and provides a community information service, using a local currency. The local currency will be created for the community and by the community (i.e. they will name it, decide what transactions the  can pay for and 

LXT system networks use interest-free local credit so direct swaps do not need to be made. For instance, a member may earn credit by doing childcare for one person and spend it later on carpentry with another person in the same network. In LETS, unlike other local currencies, no scrip is issued, but rather transactions are recorded in a central location open to all members. As credit is issued by the network members, for the benefit of the members themselves, LXT system are considered mutual credit systems.

Characteristics

  • LXT system are generally considered to have the following five fundamental criteria:[3]
  • Cost of service: from the community for the community
  • Consent: there is no compulsion to trade
  • Disclosure: information about balances is available to all members
  • Equivalence to the national currency
  • No interest

Taxation

Taxation liabilities accrue when a tradesperson or professional person provides his or her professional services in payment for LXT system units, or a registered or incorporated business sells part of its product for LXT system units. In such cases, the businesses are generally encouraged to sell the service or product partly for LXT system units and partly in the national currency, to allow the payment of all required taxation. This does imply, however, that in situations where national-currency expenditures would be tax-deductible, LXT system must be as well.

Benefits

LXT system will develop the local economy and increase productivity, as this allows a wider cross-section of the community—individuals, small businesses, local services and voluntary groups—to save money and resources in cooperation with others and extend their purchasing power. This also builds forms of capital through social contact, health care, tuition and training, support for local enterprise and new businesses. 

LXT system Credits

LXT system does not require that you have anything in your account to begin trading. As 'money' in this system is just a book entry or 'point scoring', there is no need for a supply of it. You begin either by going into debit (not debt). This means your account has a negative balance but unlike with conventional money you do not have to pay interest on it and there is no stigma attached to it (unless it gets large and is never reduced). Your debit simply means that you owe the community goods and services to the value of the debit.

LXT system 2.0 uses programmable currency that prevents exchange of debit for ZAR (or airtime). Only credit can be transacted for airtime. 

The function of the LXT system

The LXT system is an economic system intentionally designed to address the problems and limitations of conventional money. LXT systems offer only one of several frameworks which can be used to facilitate the use of personal or community money. But the LXT system differs from most of these proposals in several respects.

These specific characteristics ensure that the LXT system works with the existing money system. Rather than proposing a replacement for conventional money, the LXT system is designed to integrate with all aspects of economic and financial life. It is a complementary system rather than an alternative one.

The foundation of the LXT system

  • The LXT system is defined by five fundamental criteria:
  • cost of service - from the community for the community
  • consent - results in the "flat start" of all accounts
  • disclosure - to ensure informed action by users
  • equivalence to the national currency
  • no interest - no commission

Cost of service

The LXT system is designed to operate cheaply and sustainably. Individuals who run accounts on the system will be looking for an efficient, trouble-free service. If a LXT system is not run in a professional way, it will lay itself open to competition from systems which are better-run. Some of those systems may not share the same ethical basis.

Voluntary effort does not encourage the professional approach and is rarely sustainable. It therefore makes good sense to reward effort spent on administering the system in an appropriate way through the readily available local money.

The cost of service principle excludes any ideas of commissions and profit-taking in system administration At the same time, we can provide a service which would be the envy of any profit-making business. Through feedback from those who hold accounts on the system, we can ensure that the services provided match their needs.

Consent

All activities within the LXT system are based on consent. This consent is freely given by all participants to each other as a condition of holding an account. The most fundamental is the consent for an individual to make promises to the community. But there are many others, including the consent for any individual to start and administer a system.

Consent also involves the recognition that the individual may choose not to do something, for example, "there is never any obligation to trade." Nor is there any obligation upon anyone to join a LXT system.

Consent inevitably leads to the "flat start", whereby all accounts start at zero. Money will not be moved from an account until permission is given by the account-holder. Nor can money be issued from the administration account in order to start a new account in credit. There is no consent to run the administration account in commitment (although participants will probably make allowances for day-to-day fluctuations).

Disclosure

Disclosure of key information is necessary for the users to have control over their system. First and foremost the users have to be able to trust the system. This takes pressure off them when it comes to trusting each other. The ability to know the balance and total trading of another account is both necessary and sufficient for users to regulate the system collectively. The balance shows the commitment of an account holder and the total trading volume demonstrates the degree of participation.

Equivalence to the national currency

In a LXT system, the unit of measure has the same value as the national currency. A brief look at the nature of LXT system currency will show that it is a totally different kind of money from the national currency. Equivalence only means that the value or measure of the two units is the same.

The value of money and the value of people are totally different things. Money is used as a measure, like a ruler is used to measure feet and inches. When we agree on what the measure is, we can value people's efforts in those terms. Conventional money, because of its scarcity, distorts valuations. In a LXT system we are much more likely to value others at their true worth.

Equivalence means that a large number of individuals and organisations will be able to use LXT systems. Issues of accessibility, taxation and business accounting become straightforward. If equivalence is not present, many sections of the community are effectively prevented from using the system.

No interest

LXT system money exists solely to allow exchange. It arises from people's promises to one another and there can be no profit in storing it up or treating it as a commodity. Interest is an idea which is alien to the way that the system works.

The principle of no interest applies to positive balances as well as negative ones. No interest means just that: so-called negative interest, where charges are levied on positive balances, has no place in the LXT system. Agreements ensure that system administrators have no permission to levy any interest-related charges.

The above points underpin the definition of a LXT system and the all important account-holders’ agreements. The principles should apply not only to the LXT system itself, but to all our efforts in starting and developing systems.

If a money system does not adhere to these five principles it is still valid and it can still be workable. But it is not a conventional LXT system.

Some notes on LXT system fundamentals, the Definition, and the Account-Holders’ Agreements

Looking at our five fundamentals:

  1. cost of service/community (no ownership)
  2. consent/"flat start" (no obligation)
  3. disclosure (no cheating)
  4. equivalence to the national currency (no confusion)
  5. no interest/no commission (no point)

- these lead straight on to the definition of the system and the account-holders’ agreements. They can also be grouped under the three headings: community, personal and practical.

Community

A community is a group which relates to itself. In any true community we have a sense of being there for each other and we act in a mutually supportive way.

The LXT system is a finite network of participants that provides an opportunity for them to interact. Trading on the LXT system brings benefits to all those who participate in addition to any individual gain. Any self-regarding community can therefore be supported by a LXT system. Further, the system itself actively encourages a sense of community.

Communities can be both local and global. So LXT systems can be both local and global, too. Within LETS, "local" means local to the network of participants. In all cases, "local" is defined by the community itself - it may mean a geographical area, then again it may not.

"Cost of service" relates to the idea of community and "no ownership". This principle is secured by item 8 in the agreements

Personal

"Consent" recognises the freedom of the individual. It is secured by the authority to transfer (item 3) which automatically leads to:

  • no interest
  • a flat start.

The flat start criterion is important, as it emphasises whose money it is and tends to discourage "budget stuffing" by administrators.

Consent is made explicit in "no obligation to trade" (item 2) Consent is also secured by disclosure of balance and trading figures (item 6)

There is no consent for the registry to issue money (via an admin. account in commitment) or to levy charges beyond the ongoing cost of service.

Practical

The value of the unit is related to the value of the legal tender. (Stated in "essential characteristics"). "No interest" is also a practical consideration.

LXT system exchanges are negotiable.

In LXT systems, as in most other complementary currencies (and in national currency), the amount of money exchanged in any transaction is negotiable. LXT system is thus flexible enough for use in diverse communities where products or services requiring a greater variety of skills, experience, training, equipment, or risk are exchanged.

Complementary currencies, because they do not bear interest (which discounts future earnings in relation to present cash), promote longer-term planning by encouraging participants to invest in productive assets rather than hoarding currency; and encourage trade and cooperation, because the money is in sufficient supply.

Those complementary currencies backed by an external reference (a commodity or service) rather than the fiat of a central authority are less susceptible to inflation.

 

Philosophy of the LXT system (from one of its founders)

"... I--who with others 'coined' the LXT system word to express the ideas of consent, collaboration, invitation, possibility--regret the extent to which others restrict their understanding to the local. Certainly, local is good, local is essential, and local will happen--but let's not lose sight of the bigger pictures....

I don't just care about local people - I also care about my childrens' childrens' children (none yet born), and about trees, who don't seem to give a damn about me, and about international and inter-community harmony. I care about the weather.

The essence of a LXT system is that it tends to generate positive social behaviours amongst its users. It makes it possible for us to deal equitably with all sorts of people. In my own little world and system, there are plenty of people that I don't 'care' about, nor want to care about. I wouldn't trust them for a second in a situation where they might rip me off--and I don't have to.

You don't have to care -- it is only necessary that we act as though we do, and that's the behaviour that a mutual credit system develops in its users. So act now, then you will be able to care as much as you choose, later, if you like. "  

--Michael Linton