Exchange rings give participants the opportunity to offer and exchange their goods and services with each other without using national currencies as a medium of exchange. Exchanges within the network are accounted for with units of time, points, ‘talents’ or even using whatever internal unit the members have agreed upon, which could also be national currency. Professional or commercial exchange business between companies and corporations is called ‘barter’ or ‘counter’ trade.
Debits as well as credits in exchange, barter or counter-trade are normally interest-free. However, membership, brokering, advertising and transaction fees may be charged (in national currency or in the system’s accounting units). In the case of default or breaking the system’s trading rules, membership may be terminated by the organization or business running the exchange system and the member requested to pay off their outstanding debit along with any other arising damages in national currency.
This practice enables businesses to do business with customers and suppliers within a barter network without needing to keep cash reserves. That preserves liquidity and can be particularly helpful in times of recession. Many members of barter clubs also use the platform as a secondary market in order to utilize underused production potential or spare inventory through price discounts without affecting the standard prices in their ‘primary market’. If nothing else, an important argument for many companies is they can gain new customers and suppliers.
The global barter industry has an annual turnover of billions of dollars according to the International Reciprocal Trade Organisation (IRTA). In Germany, barter systems are much less well known even though interest in them has clearly increased since the financial crisis. The DKG (Deutsche Kompensationsgesellschaft mbH) claims to be Germany’s leading B2B (business to business) platform for barter trade. Like many other barter companies it is internationally connected so that participants can use the platform to tap into local, national and international member markets. In Austria “abc markets” and “GIT Trading” are active.
Income from barter business is treated like income from national currency for tax purposes. Because barter systems do not allow exchange of barter units for national currency, these currencies are not regulated as banks by the authorities. One critical difference is that within exchange and barter systems only transactions between members are recorded (‘compensated’) but no cash transactions or deposits take place. Also the barter organization neither offers its members loans nor the opportunity to deposit money and so from a legal standpoint does not operate a loan or deposit business, which is reserved for commercial banks. It simply creates the technical and organizational conditions along with a set of trading rules for members to grant each other debits and credits on their accounts.
The Swiss WIR Franc is by this definition not a barter currency, as it is often wrongly portrayed, but a private currency issued by the cooperative WIR Bank as commercial loans.