The following are some of the main concepts that apply to the CES. These will hopefully help administrators understand how the CES works and how it differs from other mutual credit trading systems such as LETS.
Exchanges are the organisational units of the CES. Each exchange is a discrete trading unit operating independently of other exchanges. The CES is a network of discrete exchanges around the world. What links them is the use of the CES software, which allows inter-exchange trading. Each exchange has its own separate database but what all share is the same software interface accessible through the internet.
An exchange can operate in 'stand-alone' mode meaning that it has no links to other exchanges whatsoever. However it is more usual for exchanges to operate in 'network' mode. This means that the traders of one exchange can trade with those of other exchanges, and they are able to place advertisements on the lists of other exchanges.
It is also possible for the administrator to set at the individual level whether an account holder can trade with others in other exchanges.
Geographical vs organisational
Most CES exchanges are geographically based, that is, they operate in a defined local area such as a rural community, a town, a suburb or an entire city. The CES is essentially a community based system aimed at keeping the wealth created by its users in the communities where they live.
However, an exchange can be organisationally based and not necessarily linked to any specific geographical area. Some examples of organisationally based exchanges are:
The CES is a new money system, not a club or organisation. As such those who use the CES are its users, not its members. New users do not 'join' the CES but register to use the system and are in there for life, just as they are in the official money system for life. We are 'registered' to use the official money system when our parents register our births and do not consider ourselves as opt-out members of a club when we use that money system.
Users can of course de-register from the CES if they want to, but as there are no renewal requirements they are not automatically ejected after a certain period of time.
Other terms than can be used for CES users, depending on context, are: traders, account holders, buyers & sellers, participants.
A sub-area is a sub-division of an exchange, usually a geographic sub-division but it could also be a sub-division of an organisation or company.
A geographic sub-area is an area of approximately 5 km in radius with which those living in the area identify. It could be a small town adjacent to other towns but in a larger urban context it is often an area that is physically defined by geographical or man-made features, such as rivers, hills, green belts, railway lines, motorways and urban boundaries.
Users identify with the area either because it has a name they share or because the area has a character distinct from adjacent areas. Above all it is the area where they are most likely to trade.
An organisation or company that has created an exchange for its members/employees can also define sub-areas. These might be defined in terms of the organisation's own sub-divisions or branches which might or might not have geographical reference.
The CES comes with a built-in levy system that can optionally be used. This is a transaction levy mechanism that deducts a small percentage of every transaction entered. The levy is deducted from both the sellers' and the buyers' accounts and accumulates in a special 'treasury' account. The levies can be called back into the system by the Administration when and as required. No other account may directly receive the levies.
The levies serve as a source of revenue for the Administration and so could be seen as a form of 'taxation'. It is better to see them, however, as a system of service or usage fees. Any exchange needs revenue to operate and this the best way to do it.
Many new exchanges feel that they still need a supply of official money for operational costs but usually it is better to recruit to the exchange the providers of the services that are more usually purchased with official money. That way dependence on the official money system is reduced and the feeling that the new money system is secondary to the official one is eliminated.
As the CES is a new money system and not a club, the charging of 'membership fees' is discouraged. Many former LETS groups that have joined the CES network continue to charge fees or subscriptions to cover operating expenses.
While it is legitimate to charge conventional money where expenses have been incurred in such money, doing so has a number of negative consequences, especially when it comes to membership fees.
Firstly, membership fees imply that the person or entity paying them becomes a member of some kind of an organisation, and that not paying them means exclusion from the organisation or termination of membership.
Fees thus make the organisation exclusive. Those who cannot afford the fees cannot take advantage of the services offered by the trading system.
Exclusiveness creates a 'clubby' feel where members feel they are part of a closed group on the basis of having paid a certain amount of money. By not paying their 'subs' they are automatically excluded, leaving a trading legacy that may impact detrimentally on the rest of the group.
An exchange organised as a club also requires all the paraphernalia of clubs: a constitution, a committee, AGMs, rules, the collection of subs etc. These activities take a lot of time and effort and are not really necessary for successful trading.
The CES is not designed as a tax dodge. The CES web site is merely a platform for facilitating reciprocal trade without resorting to barter or official currencies.
The CES is thus not responsible for calculating, collecting or reporting taxes. It is up to users to decide what they want to declare to the taxation authorities.
Viewed from another angle, trade in the CES does not involve the use of 'legal tender', which is how money is defined in most legal codes. In terms of conventional law the CES consists of people doing each other favours and therefore no 'money' changes hands. The credits and debits recorded in response to the transfer of value or energy between participants are merely 'points' keeping track of what happened and therefore not taxable.
Another way of looking at it is that CES users would be happy to pay tax but it would have to be in CES currency. In other words the state should become a CES user and accept taxation in CES credits. The tax revenue could be spent back into the community by purchasing goods and services from the community. This is surely better than receiving nothing in return for the provision of services in the case of those who cannot afford them.
As CES exchanges can trade with each other, each exchange has a balance of trade in relation to the other exchanges. As with users in relation to their own particular exchange, some exchanges can be in debit to the entire system and some can be in credit. Administrators need to watch their balance of trade and deal with remote trading appropriately if the credit or debit balance is drifting too far from balance (zero) for too long.
Most CES exchanges base the value of their currencies on their local official currencies. As such the standard of value differs from country to country. In order for international trade to take place and for traders to make sense of prices in other countries, the CES applies conversion rates between the different currencies.
These conversion rates are based on the money market exchange rates of official currencies though they have been adjusted to make the rates in 'emerging market' countries more realistic. Also the CES conversion rates are not subject to the regular fluctuations of money market rates.
The appropriate conversion rate is automatically applied whenever a trade takes place between two exchanges having differing rates. The site also displays all conversion rates as well as provides a conversion rate calculator.
The CES has six account types, often referred to as 'membership types': individual, shared, organisation, company, public and administrator.
Most users of the CES have Individual accounts. Such accounts are in the name of a single individual and the named person is held responsible for the account.
Shared accounts are joint accounts used by a number of people, usually members of a family. Most often a Shared account is in the name of a couple but it could be in the name of the family or in the name of one person in the family. The CES does not define a family but those named in the account profile are collectively held responsible for the account.
An Organisation account is an account for organisations. The CES does not define an organisation but it is any collective that is not profit-pursuing, that does not provide products for sale and is essentially service oriented. The account is in the name of the organisation with a named contact person. The 'management' of the organisation is held responsible for the account.
A Company account is for companies. The CES does not define a company but it is an entity that is essentially profit-pursuing and explicitly providing products or services for sale. The account is in the name of the company with a named contact person.
Public accounts are like Organisation accounts except that the full statement of account is visible to users. Public accounts are for entities that need to operate transparently. Usually such accounts are related to the Administration account (e.g. a market account) and show their statements so that users can be sure that 'public money' is not being mis-spent.
The Administrator account is a special account type that usually only applies the administration account. This is always account number '0000'. This 'number zero' account is different from all other accounts in that it gives the administrator of the exchange access to the administrative interface. It is also a 'public' account (see above).
Accounts can be in four states: 1) Active; 2) Hidden (dormant, inactive, on hold); 3) Closed; 4) Locked (blocked).
Active is the normal account state of all active users.
Hidden accounts (also know as 'dormant accounts', 'inactive accounts' and 'accounts on hold') are to all intents and purposes 'off the system'. A Hidden account cannot be seen by other users and it is disabled for the owner until they unhide it. However, simply by marking the account as unhidden (Active) it regains full functionality. Accounts can be hidden/unhidden by both the Administrator and the account holder. Normally accounts are hidden when the owner wants to stop trading for a while and stop receiving emails from the system (e.g. they are going overseas for a few months).
A Closed account is a completely disabled account. When the administrator attempts to delete an account it will be deleted if there is no trading record associated with the account. If there is a trading record the account will be Closed, as the trading record needs to remain there forever. Such an account cannot be 'recycled' (i.e. given to another user) as that user would inherit the previous owner's trading record. The action of Closing removes all details of the former owner, and deletes all offerings, wants, announcements and any other 'residue' associated with the account. Details of the former owner are saved in the Notes field, however. This is purely for historical reference. The password is changed so that the account cannot be accesssed.
A Locked account is one that has the debiting function disabled. This means that the account holder cannot purchase anything as the seller will not be able to debit the account. An account is usually locked if the owner seriously transgresses the Terms and Conditions of the exchange (e.g. seriously breaches their debit limit or only takes and does not give). Only the administrator can lock/unlock an account. A Locked account is otherwise the same as an Active account. For very serious transgressions an account can be Hidden by the administrator and have the password changed so that the account cannot be accessed.
As a trading system, the primary relationship of the users of the CES is that of buyers and sellers. A user is a seller if something is being sold, whether it is goods or services; a buyer if something is being bought, purchased, received. Other terms for buyers and sellers are producers and consumers, vendors and vendees, providers/suppliers and customers/clients/patrons/shoppers/patients etc.
What distinguishes a seller from a buyer in the CES is that after a trade has taken place, the record of the trade credits the seller's account (it goes up) and debits the buyer's account (it goes down).
Following from buyers and sellers above, a sale is an action performed by a providing party (seller) for a receiving party (buyer) and is recorded as a credit for the providing party; a purchase is the receiving of the consequences of the provider's action and is recorded as a debit for the receiving party. A trade is a record in the database that links the buyer and seller and records the amount (price) and description of what was provided and received. Simpler still, a trade has taken place when a buyer receives something from a seller and it is recorded in the database.
Sales and purchases thus each have two components: an action component where something is provided/received and a recording component where one account is credited and the other debited. Any action that has the recording component missing is not a trade.
As the concept of money in mutual credit trading systems such as CES and LETS is very different to the concept of money in conventional money systems, it follows that the terminology we use around money is also different. Practically every term that we use acquires a different meaning in the CES context. We could invent new terms but it is easier to use well-known terms but we should avoid using them unthinkingly and always consider their meaning in the CES context. Some terms take on new meanings while others can be dropped as they become meaningless.
Take, for example the word 'pay'. As trades in the CES are followed by the recording of those trades, nothing is transferred from the buyer to the seller. The buyer thus does not 'pay' the seller so the term 'pay' is redundant in CES terminology. It is better to use the terms 'debit' and 'credit' rather than 'pay' and 'receive'.
As CES 'money' is just the numeric component of a trading record in a database, the number is a measure of the value transferred rather than the measure of the quantity of something given in exchange. The particular currency name of an exchange is thus the name of a system of measure and not the name of something that exists or is treated as something that exists. It is like a kilogram or a kilometre. These units have no value in themselves but are used to measure the quantity of something else.
CES 'money' is thus not something that is transferred or exchanged for goods and services received. There is no exchange medium in the CES. Only goods and services are provided and the action is one way: from seller to buyer. CES 'money' is purely a record of the value transferred or given by the seller to the buyer. The debit recorded for the buyer represents the buyer's commitment to the trading community or what the buyer owes the community for what he or she has received.
The terms 'buy' and 'sell' thus need to be understood differently from the way they are conventionally understood. 'Buy' means to receive something and 'sell' means to provide something. There is no exchange of goods/service for money, only a retrospective record of what was transferred. A trade is thus not an exchange of values but rather an exchange of an obligation - a 'promise to sell' - for goods and services received.
In the CES it is the seller who records trades, not the buyer. This might seem counter-intuitive at first but if you think about it, it is the only way it can work.
When sales take place buyers neither give their sellers anything nor are they obligated to them in any way. In other words the buyer does not 'pay' or owe the seller anything in the conventional sense; 'payment' is made at a later time by the buyer delivering something to someone else in the community. A buyer with a positive credit balance indicates that the buyer has already 'paid' for the purchase by delivering something to someone else at an earlier time.
The seller entering the transaction is also an acknowledgement that the CES is not a barter system where the trading relationship is directly between buyers and sellers. All transactions are indirect in that we 'pay' for what we have received by doing or giving something to someone else.
Trading through the CES is similar to trading with a credit or debit card in the conventional economy. When you present your groceries at the checkout of a supermarket, it is the supermarket (the sales assistant) that enters the transaction. Your credit or debit card is not money; it is just an ID. Swiping your card debits your account and credits the account of the supermarket. Imagine if it was the other way around: you (as the buyer) took your groceries home and the supermarket had to wait for you to enter the transaction through your internet banking account. That would never work and the supermarket would have to employ an army of debt collectors chasing customers to enter their transactions!
When you deposit a regular check at the bank, you are doing so as the seller. The bank teller enters the amount into the computer, which credits your account and debits the buyer's. The cheque is not money, it is just an order to the bank authorising the debiting of the buyer's account and the crediting of yours. CES trading slips perform the same action when they are handed (by you as seller) to the administrator or a co-ordinator, who enters the information into the computer on your behalf.
As there is no exchange medium in the CES, all that needs to happen after a sale has taken place is that a record has to be made of it. There are three parties who could enter the details: the buyer, the seller or a third party such as the administrator.
If the buyer were to do it the details would likely never get entered as it is not in the interests of the buyer to debit his or her account. Sellers would have to remind their buyers to enter the transactions and after a time they might even forget, resulting in what amounts to theft on the part of the buyer. Tardy transaction entering on the part of buyers would result in a lot of frustration for sellers. If buyers entered transactions sellers would also have to send invoices to their buyers, creating an extra step that is not really required.
If the seller does it then it is in the interest of the seller to enter the transaction as quickly as possible, as it credits their account. If the seller never does it then it is only the seller who is to blame. Even if the buyer benefits by not having their account debited, the buyer can never be accused of theft. There is no need for the seller to send an invoice to the buyer, unless a firm price could not be given before the delivery of the goods or service. When the buyer approves or 'signs off' delivery the seller can enter the transaction and there is no need for any further correspondence. An enormous amount of time and effort is eliminated by not having to issue invoices. This speeds up the settling of accounts, eliminates frustration and the need to chase debtors.
In the conventional economy banks would never allow sellers to credit themselves, as the conventional banking system is so open to dishonesty, fraud and corruption. In the CES, on the other hand, dishonesty is much more difficult so it is possible for sellers to directly credit their accounts. It is also a testimony of the trust inherent in CES trading.
When sellers credit their own accounts the trading relationship in many instances is turned upside down. In the conventional money system, for example, employees are dependent on their employers for their wages or salaries. This gives employers great power over their employees. In the employer/employee situation, the employer is actually the buyer and the employee is the seller. In the CES employees are able to credit their own accounts, according to an agreement established between the two as to amount and date when this can happen. This dramatically changes the relationship between employees and their employer, for the former are not beholden to the latter. Provided they have given their services as per the agreement between the two, sellers can credit themselves irrespective of their employer's standing. Employees in the CES are greatly strengthened in relation to their employers and able to see what their employer is earning at their expense.
As buyers' accounts are debited by sellers, buyers should establish agreements with their sellers regarding when their accounts may be debited if they feel there might arise a dispute over the amount debited or there might be dissatisfaction with the goods or service provided.
When purchases are small, buyers do not in most instances require an agreement with their sellers. Acceptance of the goods or service by the buyer is usually sufficient authorisation for the seller to debit the buyer's account.
When purchases are larger, it is not good practice for buyers to allow sellers to debit their accounts without authorisation. Buyers should establish agreements with their sellers before a sale takes place. An agreement should consider what amount will be debited after delivery and what constitutes authorisation for the seller to debit the buyer's account. In many instances it is not possible for sellers to give a firm price, especially when providing services at an hourly rate (e.g. building work, mechanical repairs). In such cases the traders need to agree what will happen if the price is too high or what to do if it appears that the price will be beyond expectation. The agreement should also state how the buyer will authorise the buyer to enter the trade (i.e. debit the buyer's account). It should further consider how the trading parties will resolve a dispute or if the buyer is dissatisfied with the goods or service.
Agreements can be verbal or written. The CES site provides various tools to facilitate agreements. The Invoice facility allows the seller to send the buyer an invoice indicating the price for the goods or service provided. If the buyer is in agreement with the price and satisfied with what has been received, an electronic or paper Trading Slip should be sent to the seller. This is the buyer's acknowledgement of receipt, token of satisfaction and signal to the seller that the trade may be entered. The seller should not enter the trade until the Trading Slip has been received.
Default credit and debit limits can be set by the administrator. This means that each new account is created with the default limits. Limits can also be set for any particular account. Heavy traders might require higher limits, while traders with excessive debits can have their limits lowered.
Credit and debit limits do not affect the functioning of accounts in any way. It is up to other traders and the administrator to monitor users who develop excessive debit and credit balances. Those over their limits are listed on the site, and calling up any account holder's trading record will also show if a limit has been breached.
Local Area Co-ordinators are trusted users who are granted the ability to manage the accounts of others without having to know their passwords. In a sense they operate as 'branches of the bank' for those who do not have computers and those who do not wish to manage their own accounts.
They are 'local area' because the aim is to have at least one co-ordinator in each sub-area to service those who do not have direct access to a computer.
The administrator grants co-ordinator status to users simply by marking them as such in their account profiles. Co-ordinators have access to a special co-ordinator's interface through their normal accounts. This is a cut-down administrative interface providing them with all the tools they need to manage the accounts of others. They are able to enter trades, offerings, wants, announcements and perform other actions such as printing out statements and offerings and wants lists. The interface also gives them access to a range of forms that can be printed for those who prefer to deal with paper.