Howard Rheingold's
Tomorrow column

The Internet and the Future of Money

© Howard Rheingold, reproduced here with permission.
Print rights reserved by King Features Syndicate.
Join our discussion of this article in The Money Conference

Part I (April 16, 1997).

The Internet might be more than a new kind of marketplace and a new medium for exchanging money as we know it. If Bernard Lietaer and others are right, the Internet might lead to a radical change in the nature of money. Lietaer, fellow at the Center for Sustainable Resources at the University of California at Berkeley, was a central banker and currency manager in Belgium, with twenty-five years of working with governments and banks. He believes that money as we know it is due for a radical change; right now he's working on a book, 'The Future of Money: Beyond Greed and Scarcity." He is one of a number of people around the world who have been working on the idea of 'alternative currencies' or 'local money' that keep resources recycling within communities, instead of draining money out of communities. These efforts predate the Internet, but Lietaer sees the Net as a vehicle for accelerating the changes that he and others have been foreseeing for years.

Money, according to Lietaer, can be defined in several ways: 'Money is information about the way we exchange energy,' he says. 'Money is an agreement within a community to use something as a medium of exchange. The agreement can be conscious or unconscious, coerced or free. Most of us don't consciously choose our money. We have an opportunity to change that. The Internet is a space where that is possible to do. I expect a flourishing of money systems in the coming years. 95% of these experiments will fail. But the 5% that succeed will change the world.'

'Some implicit built-in mechanisms in money systems have social implications,' Lietaer claimed in a recent interview. 'First, currencies are national, an assumption based on 19th century emergence of nation-states. All the money we have is debt-generated--someone goes to a bank and makes a loan. This pits people against each other, collectively. Competition is built into the money system. Greed and the breakdown of community that everyone is complaining about correlate with the use of competitive money systems. But there were no money exchanges in monastic communities. The word "community" comes from Latin, meaning "exchanging gifts among each other". Some money systems can preserve this mechanism.'

Examples of money systems that preserve the gift aspect of communal energy exchange are formal systems for keeping track of the value of goods or services exchanged between members of a defined group. These differ from national currency because they are valid only within the group. For example, a local currency in your town could be an exchange arrangement that a number of people would agree to. Unlike barter, where you would mow someone's lawn in exchange for a quart of milk, you could agree to contribute a certain number of hours of lawn-mowing to your 'account'. Someone who had a dairy farm could contribute a certain number of gallons of milk. Instead of forcing lawnmowers (or anyone with a skill or commodity) to seek out dairy farmers, the farmer could go to the local exchange bank and turn in a number of milk credits in exchange for a number of lawn mowing credits. Everyone who contributes a number of credits to the local currency bank can exchange those credits for goods or services from other members of the community, and must work off those goods and services by contributing to those who have need of whatever they have to offer.

'Local Exchange Trading System' (or LETS) is the name for a system for recording transactions between members of a group who agree to provide goods and services to each other. This group produces a directory which lists their skills, services and goods, together with requests for anything they wish to obtain in trade. Such systems predate Internet-based transaction systems, but are adaptable to online communication and accounting systems.

Next week, we'll look at a number of these local currencies, and see how the Internet might facilitate them. Information about Lietaer and his theories and other resources related to alternative forms of money can be found at

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 s 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 ( maintains resources and links related to community currencies. The list of frequently asked questions from the newsgroup is found at Both sites include links to others.

Tomorrow column, "The Internet and the Future of Money" 
© by Howard Rheingold.
Howard Rheingold permits (as documented on the WeLL)
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