Complementary Currencies/Barter

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General Description

A ‘trade exchange’ or barter is traditionally understood as a commercial organization providing a (online) trade platform and running a bookkeeping system for participating businesses not involving cash-money. The name ‘barter’ is to some extent confusing as barter is strictly speaking “direct reciprocal trade”; swapping one item for another. However direct barter has its limitations: when one of two parties in a transaction has nothing desired by the other, no transaction takes place at all. Modern barters use a business-to-business currency (trade credits) as intermediary for transactions to take place. The members buy and sell products and services among each other using this internal ‘business to business currency’. Participants in barter thus have the ability to purchase goods and services from other members utilizing their trade credits next to their ordinary cash transactions. All participants in a barter start with an account balance of zero. Each corporation in the barter system has an account that is debited when purchases are made, and credited when sales are made. Lietaer (1999: 142) speaks of a ‘mutual credit systems’ for such arrangements.

All barters are commercial, that is for-profit, organizations offering a complementary currency to businesses to trade mutually. Nevertheless two types of barter can be distinguished: commercial barter and corporate barter. Corporate barter is intended for large to very large corporations and multinationals, and involves the transfer of only large sums of money. The barter company receives a certain percentage of every transaction. Active International, established in New York, is the largest corporate barter company today. In this article we will mainly focus on commercial bartering. Commercial bartering is intended for Small Medium Enterprises, and involves smaller transactions. The Swiss WIR Bank was the first and by far the largest commercial barter in the world.


Barter is a private individual initiative for businesses to strengthen themselves collectively, not involving government’s financial support or dependence on the banks for loans. By using a complementary currency, a shortage of cash during financial crisis and the instability of currencies is avoided. Modern day barter has evolved considerably to a banking-method used to realize increasing sales, conserving ordinary cash, moving excess inventory, and making use of excess production capacity for businesses around the world.

In case of the WIR, WIR credit is designed to stimulate the local economy (that is Switzerland only) as well as to alleviate economic downturn. WIR credit enables businesses to increase their purchasing power and, moreover, keeps money circulating within their own ranks. WIR is essentially a community currency because its circulation is restricted to a specific area where businesses accept payments in WIR (Studer 1998). Making use of WIR currency prevents currency from flowing outside this specific area.

Design Criteria

Support Medium

Because modern barter is essentially running a bookkeeping system or administration, no ‘physical’ money is involved. In Barter, an organization just keeps track of the transactions taking place. In case of the WIR, WIR-credit is simply electronic money. Since 1995, it is possible to make payments using a single plastic charge card rather than using cheques (Douthwaite 1999: Ch 2). In 2008 Internet-banking became available. Because no cash-payments are involved in a transaction of WIR currency, the WIR is free of theft and counterfeiting (Studer 1998: Ch 1).

Function (medium of exchange, store of value, standard of value)

Barter was invented to provide businesses with a means of payment during economic downturns, when ordinary currency is scarce. Hence, barter was invented to serve the function of trading only. In mutual-credit systems, no interest is received on positive trade credit balances nor is interest paid on negative balances, as the balance would no longer add up to zero. That doesn’t mean no mechanism are at play that encourage saving or trading; remarkably, the WIR has implemented a transaction fee, discouraging exchanges.

With regard to the function of standard of value, every WIR credit is equivalent to 1 Swiss Franc (CHF) (Lietaer 1999: 142). The obvious advantage is that it makes multiple pricing mechanisms redundant and allows for combined payments (WIR-Credit and Francs). Not all suppliers accept 100 percent payment in WIR currency. Combined payments are more common where goods and services are paid for part in cash and part in WIR (Studer 1998: Ch 1). Members that agree to accept at least 30% of the payment in WIR, are referred to as ‘official members’ Those members, that cannot guarantee a payment of at least 30% in WIR, are considered ‘unofficial’ members.

Issuing Procedure

WIR credit can be obtained in two ways. The first option is by contracting a loan in WIR credit from the WIR Bank’s head office in Basel. The second option to obtain WIR credit is to sell goods or services and receiving WIR-credit in return from the buyer. The buyer’s bank account is debited and the seller’s bank account is simultaneously credited by the same amount. A debit in WIR currency needs to be reimbursed with sales to a participant in the network in the same currency, or settled in national money (Lietaer 2008: 3).

Despite its denomination in Swiss Francs, WIR-Credit cannot be redeemed for Swiss Francs (Douthwaite 1999: Ch. 2). This design criterion guarantees that money remains within the cooperative circle.

Instead, WIR-credit is backed by the inventory and assets of the organizations joining the WIR. Strictly speaking, the assets of the businesses are ‘liquefied’; businesses monetize their unused capacities and excess inventories. Loans are backed by collateral, usually real estate. As such, debt retirement is assured by the enterprise contracting a loan. In the WIR collateral is a requirement for businesses to run a debt. If a debt is not paid off within a particular timeframe, the WIR can seize assets of the debtor. Moreover, a debtor pays interest on the loan contracted with the WIR organization. According to Douthwaite & Wagman (1999: 15) collateral is an important design aspect of the WIR. They assert that WIR’s insistence on collateral is partially an explanation for the survival of WIR where other similar systems disappeared or failed. In several occasions, some participating businesses abused the barter system by spending trade credits well beyond their capacity to earn them back, resulting in lack of trust and failure of the barter (Greco 2001: 88).

Funding and Cost Recuperation

Most Commercial exchanges make money by charging a commission on each transaction either all on the buy side, all on the sell side, or a combination of both. The WIR has installed several cost recovery mechanisms to finance its organization. First of all, a fee or levy on every transaction is installed. This fee is 0.6% for official members and 1.2% for non-official members and is paid in WIR-credit (Douthwaite & Wagman 1999: 15; Lietaer 1999: 142). Additionally a service charge of 1.75% on mortgages is implemented to pay for the costs of the organization (Douthwaite & Wagman 1999: 14). A third source of income is the interest paid on loans by businesses participating in the WIR. Although Enz and Zimmerman were inspired by Silvio Gesell, according to whom money should be free of interest, the ‘freigeldtheorie’ was abandoned by 1952 allowing low interest-rates on loans provided by the WIR (WIR Bank 2010). Again a distinction is made between official members and unofficial members. Official members pay a charge of 3.5% on account loans, whilst unofficial members pay a charge of 2.5% (Douthwaite & Wagman 1999: 15). The interest-rate ranges from 1% to 1.5% (Lietaer 2008: 3).

Implementation and Origin

Modern barter emerged with the founding of the Swiss WIR Bank. The Swiss WIR Bank was the first barter system and one of the largest still existing barters at present. Werner Zimmerman and Paul Enz established it in 1934 together with 14 others and was modeled after an exchange and clearing system in Scandinavia and the Baltic (Defila 1994). It was initially named the ‘Freiwirtschaftsring Genossenschaft’ (free economic circle cooperative) until it changed its name to ‘the WIR Bank’ in 1998. WIR is an abbreviation of ‘Wirtschaftsring’ (business circle) and also the German word for ‘we’, emphasizing its community aspect (Greco 2001: 67). The direct cause for establishing the WIR was the shortage of conventional currency after the stock market crash of 1929. By joining the WIR participating small and medium-sized enterprises were enabled to make use of WIR units to continue their transactions. Having obtained WIR credit, one can spend them at businesses participating in the WIR system. The WIR catalogue is published to give an overview of products and service supplied. Hence it is said that barter organization perform two basic functions: acting as a clearinghouse (keeping accounts of members’ transactions and trade balances) and brokering (actively connecting buyer and seller).

Impact and Significance

The WIR had proven to be a quite effective way for businesses to work together. A solid business model seems to be largely responsible for this; especially, active brokering, limits to debit and involvement of a professional organization with sufficient funds.

Size and Growth

In the 1960’s and 1970’s new commercial and corporate barter systems emerged such as Efficio (Paris - France), BarterXchange (Singapore) and BarterCard International. Euro Barter Business (Germany) and RES (Belgium) are two significant barters that emerged more recently. Because barter is essentially running a bookkeeping system, the information technology revolution provided the opportunity to implement barter systems much easier and faster (Lietaer 2008: 4). The availability of computers at low costs, for accounting and tracking barter transactions spurred the growth of barters worldwide (Greco 2001: 87). New techniques, such as the invention of the plastic (credit) card also simplified the introduction of barter systems. Despite, it should be noted that 90% of all emerging barters become defunct within its first year of existence (Wallach 2010). Today around 400.000 businesses in the world are involved in a barter exchange (IRTA 2010). Almost all Fortune 500 businesses are included (Wallach 2010). There are approximately 750 commercial and corporate barter companies serving all parts of the world. In Time magazine, turnover is estimated at US$ 10 billion in 2008, with an expected increase of 15% for 2009 (Adams 2009; IRTA 2010). BarterCard (at the time world’s largest barter) is responsible for US$ 2 billion. Eileen Hee (2010) of BarterXchange asserts the global barter industry is now worth US$ 3 billion.

Around 135 of the better exchange systems organized themselves in the IRTA (International Reciprocal Trade Organization), a global branch organization assuring the accountability of its members. The IRTA has made efforts to improve the image of bartering. In the past some fraudulent barters were established to avoid taxes or its initiators took from the system without delivering anything in return. Due to IRTA’s efforts the IRS has introduced a separate IRS tax filling form, and stresses that all barters are part of the formal economy and compliant to tax laws. The National Association of Trade Exchanges (NATE) is another significant branch organization representing the interest of the barter industry.

Most barters are members of international trading networks as well. These provide them with opportunities to access larger, global marketplaces to buy and sell within using trade credits. The Universal Currency (UC) as part of IRTA, and the BANC currency as part of NATE are examples.

Although new barters emerged in recent decades, the WIR remains by far the largest barter organization worldwide. By 1993 it had 77.000 participants (17% of all Swiss businesses) with an annual turnover of 2.5 billion Swiss francs (1.5 billion Euro)(Greco 2001: 67; Lietaer 1999: 142). By the year 2000 this was estimated to be 85.000 and 20% of all Swiss Businesses (Valentini 2000: 4). However, when considering Switzerland’s GDP of $ 242.5 billion in 1993 (±255 billion CHF), a turnover of 2.5 CHF billion represents merely 1% of GDP, and hence seems not to be very significant to the Swiss economy (Nationmaster 2010).

Despite astonishing growth in recent decades, barter organizations also have been confronted with its deficiencies. The major drawback of barter systems, like the WIR, is its inability to convert trade credit into conventional currency. In addition the barter market is becoming saturated. For this reason its not likely for new barter systems to emerge and barter has proven to have limits to growth.

Achievements and Impediments

The question that off course remains is whether barter organizations succeeded to realize their purposes, besides profit. After all, size and growth make no sense if they do not realize what they were initially designed for. The purpose of commercial barter organizations is essentially to strengthen the local economy and SME-businesses (against multinationals) especially during economic hardship by providing a complementary means of payment.

James Stodder has done extensive research on the effects of WIR-credit on the local (Swiss) economy. It turned out that WIR currency acts counter-cyclical to conventional currency making it a truly complementary currency. During economic and financial crises (when conventional currency was scarce), the volume of businesses in WIR credit expanded substantially, only to decrease with economic recovery when conventional currency becomes available. The use of WIR credit relieves the effects of conventional money shortages and financial disruptions for businesses in the WIR. Consequently, WIR secures investment and economic activity. This because WIR is never in short supply as opposed to conventional currency; with every transaction WIR money is automatically created (Douthwaite 1999: Ch 2). Stodder’s (1998; 2005; 2007) studies on the WIR show that WIR currency has contributed to more economic stability for the Swiss economy. It would mean that WIR actually helped the central bank in its efforts to stabilize the economy (Lietaer 2008).


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