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Conversion Rates

conversionThose CES exchanges designated as mutual credit base their currencies on the national currency. This means that they use the national currency to establish the unit of account or unit of value. It does not mean that there is an ‘exchange rate’ between the local and the national currency, or that they are linked or pegged; only that the national currency serves as a reference for pricing. In times of hyper-inflation the use of the national currency as a reference can be abandoned.

Exchanges designated as time banks use time as the unit of account/value. The time unit is usually one hour, but some exchanges use other time units, such as one minute (60 units/hour), 10 minutes (6 units/hour) and 15 minutes (4 units/hour).

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 not based on the money market exchange rates of official currencies as these have very little to do with reality. Instead, the CES uses a base currency of one hour. The conversion rates between time banks are thus easy to calculate, but in the case of mutual credit exchanges an average hourly wage rate is established for the area in which the exchange operates. These national average hourly rates are available from various web sites, but are adjusted by agreement with the administrators of the exchanges in different countries.

In this way much more accurate conversion rates are established. In Europe, for example, instead of having one conversion rate for all European Union countries, the conversion rates vary in accordance with local average hourly wage rates. Thus rates in northern Europe tend to be higher than they are in southern Europe.

As an example, if the average hourly wage rate in a certain area in Germany is 20 Euros per hour and the average hourly wage rate in South Africa is 150 Rand per hour, the conversion rate between the exchange in Germany and the one in South Africa is 20:150, or 1:7.5.

As it is always the seller who enters the transaction information in the CES, conversion rates are only of interest to buyers so that they have some idea of the value of the transaction in their local currency. The seller simply enters the value of the transaction as the quoted local price and does not need to know what the outcome will be for the buyer.

The appropriate conversion rate is automatically applied whenever a trade takes place between two CES exchanges having different conversion rates. The site also displays all conversion rates as well as provides a conversion rate calculator.