C H A P T E R 7
Practical Cases Today: Embryos of a New Economy
THERE ARE TWO major obstacles preventing the practical
conversion of our interest-based money into a means of
exchange which would serve everyone. First: Few
people seem to understand the problem, and secondly,
successful experiments are thinly spread all over the
world in comparison to "normal" money trade.
Taken as a group though, these experiments are not
only encouraging evidence that everyone can do
something immediately, but they also provide us with a
picture of what a transformation from the "bottom up"
would look like. If enough people understood what
issues are at stake, it would be possible to change our
money system without state support. The models we are
about to discuss differ in function - savings and loans on
the one side, and exchange of goods and services on the
other as well as in their scope from local to nation-wide.
At a local level, the Canadian LET System offers an
interest free means of exchange for groups,
communities, villages or suburbs with a minimum of 20 and a
maximum of 5,000 members.
The Swiss WIR-Wirtschaftsring (Economic
Cooperative) shows how a practically interest-free
accounting system for the exchange of goods and
services can bring significant advantages to small and
middle sized firms.
The Danish and Swedish JAK systems provide
countrywide interest-free savings and loans schemes
under conditions significantly better than those available
from commercial banks.
Taken together these models prove that an
interestfree money system which fulfills exactly the
same functions as an interest based money system is
practically possible. It proves that those who use it can
benefit from such systems otherwise they would not
continue to exist.
THE LET SYSTEM
In every village, every city and every region there are
people with abilities and resources which are not used in
the established economic system, yet there is a demand
for such abilities and resources. An exchange network
which advertises through billboards, newspapers, data
banks, radio, or other means, gives people the chance to
share these skills with one another, and enrich the life of
the community in the real sense of the word, without
using the established money system.
Of all exchange models LETS is the most widely
used. There are hundreds of LET Systems in the U.S.A.,
Australia, Europe, New Zealand and many other
countries. The first was established by Michael Linton in
January, 1983, in Comox Valley, Vancouver Island, British
Columbia, Canada. In 1990 the organization had around
600 members with a yearly turnover of $325,000
"green" dollars. These green dollars are the unit of
payment for LETS, and are equal in value to the normal
Whatever a person may be prepared to pay for a task
or piece of work is credited to the account of the one
who performs the task and debited to the account of the
person who buys the service. Interest is not paid for
either credits or debits. Since the value of the normal
clearing unit - the green dollar is equal to the Canadian
dollar, inflation works as a circulation control since
unused credits devalue at the rate of inflation. Because
everyone is responsible for the cooperative debts,
namely for unpaid debts, it is important that people know
each other and learn to trust each other.
Limiting a LET System to a locality makes sense at
the start of a program until more people learn to come
to terms with the responsibility the system demands.
Unfortunately it has not been possible to pay taxes in
green dollars. If such payments were made possible then
the local municipality or county would become partner
of the LET System and would be able to finance
investments in green dollars.
The advantages are obvious: Local people grow
richer and the state or municipality gets access to an
incredibly inexpensive work creation program.
Legally LETS does not impinge upon the established
legal system in most countries, neither does it go
against the monopoly of the state to print money,
because it is no more than a local barter club or bookkeeping system.
LETS fills a gap in the market left by an economic sys-
tem which is always in search of the cheapest production
location, destroying in the process the local autonomous
economic structure. It is true that the free world market
offers benefits and that it has contributed to the prosperity
we enjoy today in many parts of the world. However, it
is also true that this prosperity has been created at the
expense of workers in the so-called "low-wage countries,"
at the expense of non-renewable energy sources and the
stability of regional economic structures.
It is important, therefore, to renew the local and re-
gional economy. The economic ups and downs of the world
market can be counteracted only if the internal economy
of a region or a locality acts as a stable complementary
system in balance with the global exchange of goods. The
stronger the entire economic system, the stronger its in-
dividual elements can be.
In this respect, LETS is a locally based answer to the
power of large corporations and state monopoly systems
who have become highly problematic for small political
and economic structures. The LET System is immune
from local or international recessions, interest on debts,
thefts and money shortages. The world money system can
collapse; the dollar or DM can lose their value; unem-
ployment may rise, but the green dollar still functions be-
cause it is guaranteed one hundred percent by work and
by goods, and only functions if people cooperate in a direct
exchange. Its main strength is that it cannot be used for
the purpose of speculation, or one-sided enrichment.
The advantage of LETS is that it is limited only by
the time and energy a person is prepared to invest. These
features can be decisive criteria for the introduction and
extensive application of LETS, when interests are high
and money is in short supply. Experience has shown that
the people who are excluded from the normal economic
system turn out to bring unusual talents when they join
the LET System. Part-time occupations and hourly-rate
jobs ranging from baby sitting, nursery and garden work,
window cleaning, fruit preserving, to spring cleaning are
some examples of LETS exchanges.
At first, LETS met with significant opposition. Left-
ists thought it was a plot of the right, and to the right it
sounded like a communist takeover. Some business people
thought it was a trick to take money from them. Men
appeared more suspicious of the proposal, but women were
significantly more pragmatic. "We should see if it works
for us, and if it does, then why not use it?" Most mem-
bers were fascinated because the system is easy to use, and
because it has a self regulatory growth potential which is
dependent on the number of transactions the system can
LETS can be combined with the existing money sys-
tem quite easily. The origin of green dollars is totally de-
centralized and is related from its root level to the creativity
of those who earn it. Because green dollars cannot leave
the local area to buy Japanese cars or dresses from Hong
Kong, every commercial transaction encourages the de-
velopment of local resources. An unemployed mother in
Courtney expressed her satisfaction this way: "... it gives
me the feeling I am doing something for the community,
because every time I buy something with green dollars,
I know I am helping someone improve their financial
THE WIR NETWORK AND SIMILAR ASSOCIATIONS
Switzerland has had a country-wide exchange network
since 1934 whose goal is to provide enterprises with
reasonable credits and to help its members to get higher
turnovers and profits. The WIR (pronounced vir - short
for "Wirtschaft" = economy in German) was founded by
sympathizers of the Free Money System, the so-called
"Freiwirte" (Free Economists). As an exchange ring the
WIR works on the same basis as the LET System and
similar to barter clubs: a cashless accounting system is
run by a central office, cash withdrawals of deposits are
not allowed and, therefore' credits can be interest free.
In 1990 WIR had about 53,730 members, 16,788
official accounts and a halfyearly turnover of about 0.8
billion WIR, as the unit is called. The WIR, as a unit of
payment, has the same value as the Swiss Franc. Because
WIR money needs information to function in order to
connect up supply and demand, the administrative group
publishes a monthly magazine as well as three catalogues
per year, showing products and services offered within
The WIR defines itself quite openly as a support
system for middle-sized business in competition with
stronger and larger enterprises, helping those companies
to fight an ever larger and intervening government. The
organization is structured like a bank, and has its main
office in Basel, seven regional offices throughout
Switzerland with a total staff of one hundred and ten employees.
Payments are made with forms not unlike normal bank
cheques, with credit cards and bank forms. All
transactions are either credited or debited by the central
office. Savings do not accrue interest, and loans are
charged only a minimal fee. Money is "created" in that a
transaction takes place, exactly as described for the LET
System. The difference here is that it is a nation-wide
system and that it is limited to business. In 1990 the
costs of the WIR organization were covered by a
quarterly membership fee of eight Swiss Franks or 32
SFr per year, plus costs of 0.6 - 0.8 % for every
In spite of an almost 60-year success in Switzerland
the cooperative barter system has not been repeated in
any other country in Europe. There are several reasons
for this. In Germany in 1934, after countless "clearing
houses," "clearing societies" and "exchange banks,"
organized basically on WIR Ring principles, had
attracted many ordinary people, a commission of inquiry
under the chairmanship of Mr. Schacht (then president
of the German Central Bank) dictated legislation against
the "misuse" of cashless payment systems in 1934.
Paragraph 3 of this legislation spells out that cash
withdrawals must be possible from any accounting
system. This hit the core of the exchange rings. After
this legal defeat and in spite of so many difficulties, no
one expected that a commercial barter club would
establish itself in Frankfurt/Main, the main banking
centre of the German Federal Republic. The "Barter
Clearing and Information" (BCI) group, although far
more expensive in its services than the WIR Ring, has
been successful. Instead of a 32 SFr (approx.
US $18) annual fee, the BCI charges DM 480 (approx.
US $300) the first year. Unlike the 0.6 to 0.8% per
transactions that the WIR Ring calculates, the BCI
charge 1 to 2% per transaction.
The BCI is not considered a bank by the German
Federal Supervisory Board because it only deals with
goods and the exchange of services, and uses money
only to calculate the value of the transactions. Its
turnover in 1990 was DM 102,000,000 of which 30
million were barter fees. In contrast to WIR, the BCI has
a consulting department to advise customers, and makes
sure that companies do not carry negative balances for
too long. After twelve months, accounts which show a
minus have to be balanced. This allows those who have
accumulated a positive balance and want to leave the
system, the possibility of a compensation in German
Marks after a period of six months and only if they leave
the system. This feature overcomes the cash
convertibility problem of the German credit laws, the
problems of non-convertibility of the Swiss WIR
currency into Swiss Francs, and the problems with
members who do not want to be part of the system any
more but cannot get out because they have high deposits,
having provided services and goods for others in the
THE J.A.K. COOPERATIVE BANKS IN SWEDEN
The initials J.A.K. stand in Danish for land (jord),
work (arbete) and capital (kapital), a movement which
started in Denmark during the 1930s. At that time, most
Danish farmers were heavily in debt and although their
farms were productive, they could not hold on to their
properties. Together with traders and producers, the farmers
developed their own interest-free currency and banking system.
Soon, it was clear to them that the new system could make their
farms profitable again. Fearful that this example would become
widespread, the Danish government prohibited the new
currency from 1934 to 1938.
Today, the Danish and Swedish schemes (which started
anew in the 1960s and 1970s) are basically similar and offer the
same lending advantages, but they have different organizational
methods. In Denmark, there are small JAK banks which offer
standard services. In Sweden, the scheme operates through the
postal banking service.
The long term socio-political aim of the Swedish JAK
cooperative is to make interest unnecessary so that an economy
can exist in balance with nature, without inflation or
unemployment. Members are distributed all over the country.
Early in 1991, the Swedish JAK group had 3,900 members
and a total turnover of 34 million Swedish Crowns (about US $
15 million). Already in 1993, the membership had risen to
38,000 and the turnover to 600 million Swedish Crowns
(SEK). Since everyone saves, at least as much as they borrow,
it is obvious that the total system maintains a constant balance.
Figures 19 and 20 show two examples of loans with
different amounts, comparing bank loans with JAK loans over
the same period of time. (33) Obviously everyone is better
off when reciprocal saving and lending actually works without
interest. Participation in the J.A.K. system, up to the total
amount of a loan, makes unquestionable sense. Some people
save above that commitment voluntarily, giving those who need
a loan the opportunity to borrow before they save.
People who only want to save, however, lose
(through inflation) and, therefore, seldom participate.
The two examples depicted on pages 125 (figure 19) and 126 (fig. 20) show
a small short-term loan and a larger, long-term loan. All
amounts are in Swedish Crowns (SEK).
EXAMPLE 1: A SEK 17,000 loan over three years, at
3.4 % effective cost, is still significantly cheaper than an
identical bank loan at 16.1 %.
EXAMPLE 2: A larger credit, however, SEK 399,640
would cost 1.7 % over 20 years, compared to an average
bank loan costs of 13.1 %.
In both cases, borrowers have not only the better con-
ditions but additionally, a respectable savings of about 60 %
of the loan at the end of the established loan maturity.
In January 1990, the Ministry for Islamic affairs in
Kuwait confirmed that the principle of the JAK system
was compatible with Islamic economic principles. Since
then, a substantial proportion of the JAK membership
comes from the Arab world.
From a legal point of view, the JAK system is possible
in Sweden because a registered association is allowed to
keep and administer deposits and transactions.
ADVANTAGES AND DISADVANTAGES OF ALTERNATIVE MONEY
AND CREDIT SYSTEMS
Exchange rings, barter clubs, and savings and loan as-
sociations are embryos of a new economy because they
offer advantages to their members, otherwise no one would
use them. Goods and services worth US $2 billion are bar-
tered yearly in the U.S.A. Taking into account the
growing number of transactions, based on barter,
between Eastern and Western Europe, as well as
industrialized and developing countries, it is estimated
that between 10 to 30% of the world trade is barter
trade. Everywhere barter trade allows an additional
volume of trade which would not be possible within the
normal monetary system. The basic features of all
exchange or barter systems are very similar:
Members hold an account in a central office.
Accounts are held in fictive clearing units (green
dollars, WIR, etc.) and their value is identical to
the national currency.
An overdraft up to a particular limit is allowed,
and members with positive balance become de
Positive credit balances receive no interest,
loans are interest-free, or (compared to market
interest) carry very low interest.
Cash deposits are sometimes allowed, and cash
withdrawals are basically not allowed, or are
Members inform the central office about all
transactions by telephone, in writing, or through
The central office administers all settlements.
The central office is paid by either yearly
contributions and/or a fee per transaction by
buyer and/ or seller.
The participants determine the price of the clearing
The central office can demand a reserve to cover
a loan against losses, and for cases of misuse.
The central office is responsible for coordinating
and informing members of credit and lending
Needless to say, barter and exchange systems, special-
izing at a local, national or international level, have ben-
efited greatly from the new information technology. The
notion of a free exchange of goods and services as envis-
aged by Gesell and Proudhon, is now much easier to imple-
ment where information travels fast to any place in the
It is important to understand that barter clubs reverse
today's banking principles. They reward those who ex-
change goods and services with interest free money and
punish those who sit on their surplus money. It does not
pay to keep green dollars or WIR sitting on an account,
since there is no interest to be gained. If the group who
uses the barter system is closely representative of the total
market, then this economic microcosm will function well.
An economy which would consist of a hundred decentral-
ized barter clubs would have to pay only the costs for
clearing and information, instead of the heavy load of
Experience shows that excessive lending, i.e., long-
standing negative accounts, can be just as dangerous as a
high saving rate, i.e., long-standing positive accounts. To
prevent the first from occurring, a deadline can be used
to urge people to balance the extreme negative accounts,
stipulating, for example, that negative balances have to
be paid in the normal currency after one year, to be paid
into a trust account, until a positive balance has been
To prevent the second from occurring, a parking fee
would be introduced to encourage people to part with their
savings. Many exchange ring systems tend towards stag-
nation because too many members save too much. The
LET System in Comox Valley and other localities grew
to a point and then stagnated suddenly when the possi-
bility for meaningful investment disappeared. However,
economic activities would liven up the moment credit
becomes available to members.
Therefore, the exchange should be linked to a bank-
ing service. To simplify bank procedures for those with
a large credit surplus, and to make negotiations for credit
seekers easier, it would be possible to establish credits in
green dollars (or the respective unit of barter). Large risks
would have to be correspondingly assessed and covered
by risk premiums and brought into balance with a posi-
tive credit balance.
The reward for the individual who saves would be no
extra money or interest - but rather the possibility to keep
his or her money without loss on a savings account. In
that respect, a parking fee as circulation incentive pro-
vides the system with an impetus similar to interest. What
disappears are the multiple credit back payments and, with
them, both the unhealthy growth of the economic sys-
tem and the interest-based one-sided advantages for money
lenders as we know them today.
Two important problems need to be mentioned:
(1) The first is tax evasion. This was a prevalent prob-
lem among the commercial barter clubs in the
U.S.A. some years ago. As a result legislation
has been passed in Washington, D.C. allowing tax
officials to look into the accounts of all
members of a barter club.
(2) This leads to the second problem, namely that of
the right to privacy. A perfect central accounting
system would not only be an ideal instrument for
economic transactions without the heavy load of
interest, but also an ideal supervisory system for
a totalitarian government. Such a perfect
quantitative and qualitative information service
has been the dream of societal planners in both
East and West. Already in 1897, Solvay
suggested a cashless economy, based on
centralized accounts, which would register every
movement in people's lives, and actually draw a
diagram of their activities, and of everyone's
actual relationships. In the 19th century, it was
technically impossible to deal with the amounts
of information necessary for such a scheme, but
(as everyone knows) the situation has changed
drastically in the last few decades.
A cashless money system carries the implicit
possibility of checking up on the diagram of everybody's
activities through the records of all transactions from
their bank accounts. We should be conscious that a state
monopoly, combined with a totally cashless monetary
system, could become very dangerous, indeed, for our
In summary, I would like to restate my proposal:
The combination of an exchange ring, like the LET
System or WIR exchange ring - with a savings and loans
association, like the JAK System - but based on a park-
ing fee or circulation incentive to help all necessary
transactions does not exist today, although it would be
quite easy to bring into existence by linking together the
longstanding practical experience with these two
systems. Thus an interest-free money system would be
created which would provide all the possibilities
covered by the normal money system:
Different attempts with alternative money systems
are politically meaningful, because they help us to
understand how money works and the purpose money
serves in our life. Practical experiences are important,
because they encourage people to make changes on a
wider basis. However, so far none of these attempts have
changed the major problems caused by today's money
system in the world economy. Therefore, the aim to
introduce fundamental monetary change at a national and
international level should be among our highest political
priorities for a just world.