Much has been said and written about fiat currencies. I don’t want to add much to the body of work surrounding the topic, but I do want to apply the concepts and ideas to barter. Barter exchanges ARE a fiat currency. Call it an alternative currency, call it a barter currency, trade dollars, barter credits, ITEX dollars, whatever you want, but the truth is that barter exchanges market and manage a fiat currency, differing only from the currency of the country in which it resides by the scope of the purchasing power.
One of the worst things about the barter industry, and one of my pet peeves, is exchange owners who deficit spend their own trade dollars. I found a great article about fiat currency, and here’s what it said about inflation and spending newly printed money (deficit spending).
But other people benefit from an inflationary monetary policy: the people who get to spend the new money first. When the money supply grows faster than the aggregate of all the goods and services in an economy, the result is inflation. But when new money is printed, the person who spends the money first gets to enjoy the value of that cash before the general value of the currency decreases. And so who is it that usually spends that money first? Banks. Those who borrow new money from banks. Government. Contractors who are paid by the government. These are the folks who realize an advantage by spending the new money before inflation occurs from the increased money supply.
If you swap out bank and government with exchange owner, and money with barter dollars, the article fits the industry stereotype to a T.
I started working for United Business Exchange in Utah in 2000. I didn’t know much about barter, but I knew I loved it. I knew I loved the magic it could make for people. Little did I know that the company I worked for, the owners I worked for, weren’t interested in owning a trade exchange, they were interested in raping a trade exchange. Over the year and a half I worked with them, I watched them spend more than $200,000, deficit-style, new money printed by the computer that held the account balances. At first I didn’t understand what was happening. More accounts getting more dollars, but not balancing well within the exchange. Less people selling. More people wanting to buy. I started complaining. They moved me to a new office. Eventually I quit. At the end, I saw a $45,000 landscaping job get done on the owner’s house, paid for by a credit line that would never get repaid.
My second experience was as a franchisee for a regional exchange. They were more subtle about their deficit spending. They hid it better. They were sneakier. I didn’t find out about it until after I left.
The barter industry creates a sense of invincibility. It makes printing money seem so easy and without consequence. Except that when you deficit spend your dollars, sooner or later your exchange locks up and no one is selling anymore. No wonder so many exchanges come and go, no wonder the story after story of business owner who contributes to an exchange but never gets anything in return.
Being in the barter industry, you can empathize a little bit with the federal government. It’s easy to print your own money and spend it. You get the benefits of stronger buying power, those that end up with your dollars get the dollars but without the buying power.
As easy as it seems, it is devastating to an exchange. The federal government is huge, it’s currency circulating the world. A local exchange is small, its currency circulating only an area within, at most, a couple hundred miles. Local buying power is king in a barter exchange. While there are large trades that happen across state and international boundaries, most retail transactions happen within a 20 mile radius. Local buying power is king.
If you are engaging in this practice, deficit spending inside your exchange, stop. End the practice now. Give strength to your currency long term by ending the deficit spending and signing up a bunch of new members. At the same time, create something of value to sell to your members (maybe advertising on your website, in your newsletter, in your email) so you can get some of those dollars back in to the credit line you gave yourself. It will save your exchange in the long run.
