Howard Rheingold's Tomorrow column
"The Internet and the Future of Money"

© Howard Rheingold, reproduced here with permission.
Newspaper & magazine rights reserved by King Features Syndicate.


Part II (April 23, 1997)
The Internet might lead to a radical change in the future of money if the Internet's technical mechanisms are used to support the creation and maintenance of 'local currencies'--a medium of exchange that many communities around the world are beginning to experiment with. One of the most well-known forms of local currency is LETS--Local Exchange Trading Systems. A group of people, usually residing within the same geographic community, joins a formal system for keeping track of the value of goods or services exchanged between members of the group. Anything from lawnmowing to fresh vegetables, typesetting to babysitting, crafts to consultation, can be exchanged. Unlike barter, individual do not trade goods and services directly, but use the local currency to mediate transactions. The two key mechanisms for maintaining a LETS system are an accounting system for keeping track of people's contributions and withdrawals, and a registry or directory that enables people to find the goods and services they seek. Although these systems were created in the early 1980s, without reference to Internet-based tools, the recent emergence of digital signature, digital money, and other Internet-based economic instruments makes it possible to envision LETS systems that extend beyond local geographic communities.

LETS credits are units that communities use to measure the value of exchanges. In Manchester, England, they call them BOBBINs. In San Francisco, they are called FOGs. One group on the Internet calls their unit of currency VIRTs. One of the most famous is the Ithaca, New York, HOUR. The idea of LETS was first developed by Michael Linton, and started in Canada in the early 1980s. LETS systems have spread around the U.S.A., Australia, New Zealand, and the U.K., where there are now around 300 active systems. The security of these systems depends on good communications--the communities are self-policing to the degree that members can see the transaction records of other members, and people who take from the system without contributing to it are soon weeded out. People who have a good record, over a period of time, of paying their goods and services back into the system, are likely to be able to be granted credit for others--buying goods or services in excess of their account balance, then paying back into the balance by providing goods and services as they are requested by others.
Paul Glover, who created the Ithaca, New York, HOUR system, describes it this way: '...the Ithaca HOUR is Ithaca's $10.00 bill, because ten dollars per hour is the average of wages/salaries in Tompkins County. These HOUR notes, in four denominations, buy plumbing, carpentry, electrical work, roofing, nursing, chiropractic, child care, car and bike repair, food, eyeglasses, firewood, gifts, and thousands of other goods and services. Our credit union accepts them for mortgage and loan fees. People pay rent with HOURS. The best restaurants in town take them, as do movie theaters, bowling alleys, two large locally-owned grocery stores, and thirty farmer's market vendors.'

The Internet offers several powerful means of amplifying the ability of a group of individuals to create a community currency. First, because the Net facilitates global communications, the group does not have to be limited to a geographic area. Second, because the Net and the computers connected to it make it possible to keep track of a large number of transactions and communicate their results rapidly, it is possible for a community to keep track of the activities of members and self-police. Third, because methods involving encryption make it possible to exchange national currencies as well as local currencies ('digital cash'), it makes it possible for different local currency systems to honor each other's translations. And finally, encryption-based 'digital signature' technology makes it possible to protect against online counterfeiting or impersonation. National currencies are based on debt and competition and are backed by gold and government promises. Local currencies are based on contribution and cooperation and are backed by the talents and promises of humans.

Transaction Net ( http://www.transaction.net/money/community/index.html ) maintains resources and links related to community currencies. The list of frequently asked questions from the alt.community.local-money newsgroup is found at http://cascadia.ssc.com/~globalex/index.html. Both sites include links to others.

http://www.transaction.net/press/tomorrow.html