Can LETS scale?
02 Jun 2026Local Exchange Trading Systems (LETS) are unequivocally a good thing. They can strengthen local communities, encourage cooperation, and increase local trade.
My thesis is simple: LETS work precisely because they are small. The mechanisms that make them successful at small scale are the same mechanisms that prevent them from scaling. Whenever a LETS network grows beyond the limits of personal trust, it faces a choice: either remain local, or develop institutions that increasingly resemble the banking and governmental structures it was originally designed to avoid.
Small is beautiful
LETS face a challenge that is often overlooked: they require not only technical administration, but political administration as well.
While the system is still small, the political decisions are relatively simple: Which members to admit, and what global credit limits to impose. However, as the system becomes bigger things become much more complex.
When the number of participants grows, their variety grows as well: There are individual participants, small businesses, bigger businesses, cooperatives, traders that import and export goods, representatives of the local bureaucracy, free riders etc. The system-wide rules that worked quite well in the past, now in the bigger system, can not resolve all the conflicts of interest between the various kinds of participants – at least not in a way that satisfies everyone. The result is that difficult political decisions must be made, usually resulting in most people eventually abandoning the system.
Most LETS administrators understand these dynamics and try to keep the system small and cohesive. However, a trading system can not be entirely local. Some exports and imports are always needed. To allow external trading, while still keeping the system small, some form of inter-LETS trading should be organized.
Here is where the problem of scale reappears.
Inter-LETS trading
To organize inter-LETS trading, trust must be established between loosely coupled groups of people. A person can decide to trust another person – we humans are wired to do this – but trust between groups is much harder to establish and maintain. In practice, it usually depends on relationships between specific individuals acting as representatives of their respective communities.
Let’s assume that a network of trust is established between the administrators of several LETS communities. Then let’s take a step back and think about what it is that has been created:
We have several loosely coupled groups of people, represented by administrative boards. These administrative boards do have some limited trust in each other. However, to maintain and expand this trust, the boards must regularly meet each other. A distinct social circle has been formed, consisting entirely of LETS administrators.
So we have a social circle tasked with increasing mutual trust. Everybody knows that one of the most effective ways to strengthen trust within any social circle is the exchange of favors and reciprocal obligations. This is not necessarily corruption; it is simply how human beings build durable relationships.
But at this point we should ask an uncomfortable question: how exactly is this different from the early stages of a bureaucracy?
We now have communities represented by administrative boards. Those boards meet regularly, negotiate agreements, establish common rules, and develop relationships of trust with one another. The resulting structure may be friendlier and more democratic than a conventional bureaucracy, but structurally it is already moving in the same direction.
So let’s take a step back and look again.
Creditor-debtor relations
For the inter-LETS trading to work, there must be some form of creditor-debtor relations established between separate LETS communities. But think about this: What exactly does it mean for one loosely coupled group of people to owe something to another loosely coupled group of people? How can this work in practice?
Once significant inter-LETS debt exists, pressure emerges for mechanisms that guarantee repayment. Creditors want assurances. Debtors want flexibility. Someone must adjudicate disputes and absorb losses.
As these pressures accumulate, administrators inevitably acquire new responsibilities and new powers. Whether those powers are called taxes, reserve requirements, membership obligations, or something else is largely a matter of terminology. The underlying dynamic is the same: inter-community debt creates demand for institutions capable of enforcing inter-community obligations.
If LETS communities wish to avoid creating institutions whose primary purpose is to manage and enforce inter-community debt, then inter-LETS indebtedness must remain negligible.
This is not merely a matter of preference. Significant inter-community debt creates pressure for enforcement mechanisms, and enforcement mechanisms require institutions capable of exercising power over the participating communities.
Many LETS advocates would regard such institutions as fundamentally at odds with the original spirit of LETS. If that concern is taken seriously, then keeping inter-LETS indebtedness negligible is not optional; it becomes a design requirement.
Trade imbalances
However, trade nowadays is almost always asymmetrical: The suppliers which you buy goods and services from are rarely your customers. This applies to every level of trade – from local to international. Therefore, it is impossible for LETS communities to trade among themselves and yet maintain a perfect balance of trade. Some buffers must exist so that LETS communities are able to withstand trade deficit for some period of time.
Banking systems solve this problem by maintaining bank reserves – a currency maintained by the central bank, which commercial banks are obliged to hoard, so that they can withstand periods of trade deficit by spending their bank reserves.
It is crucial to understand however, that bank reserves must be backed by well-performing loans. That is: bank reserves are backed by the power of the banking system to systematically extract value from indebted businesses.
Bank reserves are often presented as a technical solution to clearing imbalances. They are not. They are a political solution.
A reserve asset works only because there exists a system capable of ensuring that the assets backing it retain value. Behind every reserve currency stands an institutional apparatus capable of enforcing claims, collecting payments, liquidating collateral, and absorbing losses.
LETS communities generally reject precisely those forms of institutional power.
If the argument so far is correct, then the challenge is not to eliminate trust, credit, or trade deficits. Those are unavoidable. The challenge is to ensure that the risks associated with them remain attached to the people and organizations that voluntarily assume them, rather than being transferred to a growing administrative structure.
An alternative approach
Fortunately, there may be another approach.
Instead of organizing trade around geographically defined LETS communities, imagine a system in which businesses themselves operate as LETS issuers:
Businesses can start their own LETS communities
Any business – whether a sole proprietorship, cooperative, small company, or large company – can issue its own currency and thereby administer its own LETS community.
The members of such a community would be:
- The owners of the business.
- The workers.
- The customers.
Only the owners can have negative balances
Only the owners of the business are permitted to have negative balances. Thus, anybody (most importantly: each customer) can become a member, and is automatically allowed to have a positive or zero balance.
When workers and customers hold positive balances, they effectively extend credit to the owners of the business. This outstanding credit to businesses acts as the necessary buffer which allows businesses (aka. business-administered LETS communities) to withstand trade deficits for a period of time.
Note that for those buffers to exist, only the natural trust of the customers to their suppliers of goods and services is needed. No “reserve currency” backed by the power to systematically extract value is required.
People can belong to many LETS communities
A person may simultaneously hold any number of business-issued currencies.
For example, someone might hold currencies issued by a grocery store, a hair salon, and an automobile repair shop. Each currency is issued and redeemed by the business that stands behind it.
People can swap currencies
People who hold one currency but need another can exchange them through public exchange platforms.
These exchanges perform a purely technical function. They do not decide who may participate, who deserves credit, or which transactions should be permitted.
Instead, they facilitate voluntary exchanges between participants. They act as clearing houses when debt clearing is needed, and debt issuing platforms when currency issuing is desired.
Conclusion
The important question is not whether LETS can scale.
The important question is whether LETS can scale without creating institutions whose primary purpose is to manage and enforce debt – thus recreating the very thing they were meant to replace.
If the answer is no, then perhaps the path forward is not to scale communities, but to connect producers and consumers in ways that preserve the local and voluntary character that attracted many people to LETS in the first place.