Community Exchange System
Encyclopedia
The Community Exchange System is an Internet-based trading network 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. It does not have printed money
or coin
s but uses computer technology to serve as an "online money and banking system" and as a marketplace. 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. While there are reports that the system is growing, in 2011 the system handles only a tiny fraction of international world commercial activity.
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. 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. 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.
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. 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. 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.
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; a second report counted the number of exchanges at approximately 300 in 30 different countries. One estimate was that there were 2,000 members in 2006 with a total of 6,700 members in 50 groups in eight countries. By 2011, the number of participants in the Cape Town Talent Exchange was estimated to be 4,000. A report in Time Magazine suggested that alternative forms of money
are "growing in popularity" in places such as South Africa
and elsewhere. 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. One estimate suggested that the total value of local exchange trading systems trades worldwide was one billion South African rands in 2004.
, 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. 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".
Generally, members are not allowed to accumulate either too much debt or too much credit on the system. 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. It is taxed like any currency and a "nation's tax rules apply ... just like national currency." 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.
or credit score
to qualify for a traditional job. Regardless of a person's past financial situation, each person's new contributions have exchangeable value based on the worthiness of their contribution. 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." 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.
Legum argued that:
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. And it is international in scope. Other advantages cited include benefits for the environment, being good for remote areas without access to traditional banks, It can be "ideal for launching small businesses or piloting projects without spending cash", according to one view.
Fiat money
Fiat money is money that has value only because of government regulation or law. The term derives from the Latin fiat, meaning "let it be done", as such money is established by government decree. Where fiat money is used as currency, the term fiat currency is used.Fiat money originated in 11th...
. While the relatively new system can be used as an alternative to traditional currencies such as the dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
or Euro
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
or South African rand
South African rand
The rand is the currency of South Africa. It takes its name from the Witwatersrand , the ridge upon which Johannesburg is built and where most of South Africa's gold deposits were found. The rand has the symbol "R" and is subdivided into 100 cents, symbol "c"...
, the Community Exchange System is a complementary currency
Complementary currency
Complementary currency is a currency meant to be used as a complement to another currency, typically a national currency. Complementary currency is sometimes referred to as complementary community currency or as community currency...
in the sense that it functions alongside established currencies. It is international in scope. It does not have printed money
Banknote
A banknote is a kind of negotiable instrument, a promissory note made by a bank payable to the bearer on demand, used as money, and in many jurisdictions is legal tender. In addition to coins, banknotes make up the cash or bearer forms of all modern fiat money...
or coin
Coin
A coin is a piece of hard material that is standardized in weight, is produced in large quantities in order to facilitate trade, and primarily can be used as a legal tender token for commerce in the designated country, region, or territory....
s but uses computer technology to serve as an "online money and banking system" and as a marketplace. 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
Barter
Barter is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. It is usually bilateral, but may be multilateral, and usually exists parallel to monetary systems in most developed countries, though to a...
, since it uses a digital unit of value. While there are reports that the system is growing, in 2011 the system handles only a tiny fraction of international world commercial activity.
Background
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
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
IOU (debt)
An IOU is usually an informal document acknowledging debt. An IOU differs from a promissory note in that an IOU is not a negotiable instrument and does not specify repayment terms such as the time of repayment. IOUs usually specify the debtor, the amount owed, and sometimes the creditor...
notes––in which one person declares a debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
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. And some communities, typically remote ones, have instituted what is sometimes called a community currency with paper notes such as the Totnes pound
Totnes pound
The Totnes pound is an alternative local currency, intended to support the local economy of Totnes, a town in Devon, UK.The initiative is part of the Transition Towns concept, of which Totnes is a pioneer...
in the town of Totnes
Totnes
Totnes is a market town and civil parish at the head of the estuary of the River Dart in Devon, England within the South Devon Area of Outstanding Natural Beauty...
in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
; the idea was to promote local commerce and to "keep money circulating within the town's local economy," according to one report. 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.
History
The system known as the Cape Town Talent Exchange began in 2002 or 2003 in Cape Town by Ashoka fellowAshoka: Innovators for the Public
Ashoka: Innovators for the Public is a nonprofit organization based in Arlington, VA, supporting the field of social entrepreneurship. Ashoka was founded by Bill Drayton in 1981 to identify and support leading social entrepreneurs through a Social Venture Capital approach with the goal of...
Tim Jenkin
Tim Jenkin
Timothy Peter Jenkin is a South African writer, former political prisoner and prison escapee.Jenkin, a Cape Town resident and University of Cape Town alumnus, was charged with "producing and distributing 18 different pamphlets on behalf of banned organisations" including the South African...
. 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
Khayelitsha
Khayelitsha is a partially informal township in Western Cape, South Africa, located on the Cape Flats in the City of Cape Town. The name is Xhosa for New Home...
within the city of Cape Town
City of Cape Town
The City of Cape Town is the metropolitan municipality which governs the city of Cape Town, South Africa and its suburbs and exurbs. As of 2007, it had a population of 3,497,097....
to become self-sustaining. The initial design was as a local moneyless not-for-profit
Nonprofit organization
Nonprofit organization is neither a legal nor technical definition but generally refers to an organization that uses surplus revenues to achieve its goals, rather than distributing them as profit or dividends...
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. 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
South Africa
The Republic of South Africa is a country in southern Africa. Located at the southern tip of Africa, it is divided into nine provinces, with of coastline on the Atlantic and Indian oceans...
. 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 currencyComplementary currency
Complementary currency is a currency meant to be used as a complement to another currency, typically a national currency. Complementary currency is sometimes referred to as complementary community currency or as community 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; a second report counted the number of exchanges at approximately 300 in 30 different countries. One estimate was that there were 2,000 members in 2006 with a total of 6,700 members in 50 groups in eight countries. By 2011, the number of participants in the Cape Town Talent Exchange was estimated to be 4,000. A report in Time Magazine suggested that alternative forms of money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
are "growing in popularity" in places such as South Africa
South Africa
The Republic of South Africa is a country in southern Africa. Located at the southern tip of Africa, it is divided into nine provinces, with of coastline on the Atlantic and Indian oceans...
and elsewhere. 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. One estimate suggested that the total value of local exchange trading systems trades worldwide was one billion South African rands in 2004.
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. 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 creditMutual credit
Mutual credit is a type of alternative currency in which the currency used in a transaction can be created at the time of the transaction. LETS are mutual credit systems.Typically this involves keeping track of each individual's credit or debit balance...
, time banks
Time Banking
Time banking is a pattern of reciprocal service exchange that uses units of time as currency. It is an example of an alternative monetary system. A time bank, also known as a service exchange, is a community that practices time banking...
, or some even use exchange-specific paper currencies
Banknote
A banknote is a kind of negotiable instrument, a promissory note made by a bank payable to the bearer on demand, used as money, and in many jurisdictions is legal tender. In addition to coins, banknotes make up the cash or bearer forms of all modern fiat money...
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. 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
Database management system
A database management system is a software package with computer programs that control the creation, maintenance, and use of a database. It allows organizations to conveniently develop databases for various applications by database administrators and other specialists. A database is an integrated...
keeps track of which persons have which amounts of "money".
Generally, members are not allowed to accumulate either too much debt or too much credit on the system. 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. It is taxed like any currency and a "nation's tax rules apply ... just like national currency." 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.
Benefits
Advocates suggest the Community Exchange System is a "means of empowerment" for poor people, the elderly, disabled persons or those described as underemployed. 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 historyCredit history
Credit history or credit report is, in many countries, a record of an individual's or company's past borrowing and repaying, including information about late payments and bankruptcy...
or credit score
Credit score
A credit score is a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person...
to qualify for a traditional job. Regardless of a person's past financial situation, each person's new contributions have exchangeable value based on the worthiness of their contribution. Proponents claim that it is not essentially different from traditional national currencies in the sense that both types of money are in digital form
Digitizing
Digitizing or digitization is the representation of an object, image, sound, document or a signal by a discrete set of its points or samples. The result is called digital representation or, more specifically, a digital image, for the object, and digital form, for the signal...
. 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
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
or deflation since "there is no such thing as too much or too little money." She argued that it was a superior arrangement because no interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
was charged and that the system was "transparent" because everybody could see everybody else's balance of credits and debits.
Legum argued that:
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. And it is international in scope. Other advantages cited include benefits for the environment, being good for remote areas without access to traditional banks, It can be "ideal for launching small businesses or piloting projects without spending cash", according to one view.
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. 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, 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" 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.External links
- Community Exchange System web site
- Community Exchange Network discussion forum on Ning
- Community Exchange System discussion forum on Facebook