This text is based on an interview with the Executive Director of IRTA Ron Whitney and was originally published in “People Money- the Promise of Regional Currencies” by Margrit Kennedy, Bernard Lietaer and John Rogers in 2012
IRTA is a non-profit organisation that promotes high standards of practice amongst business exchange systems through education, self regulation, ethics and government relations. Started by leaders of US business exchanges in 1979 to represent their interests, IRTA is the oldest barter trade association in the world and has been active in promoting and improving the industry ever since. IRTA estimates that over 400,000 companies worldwide use trade exchanges to share their excess business capacities and underperforming assets and to earn an estimated $12 billion dollars in previously lost and wasted revenues.
Ron Whitney, IRTA’s Executive Director, started a business exchange in the Philadelphia area of the USA in 1993 after working in the legal, real estate and insurance fields. He immediately grasped the potential of trade and barter as a bona fide business model and has become one of its most passionate advocates. After serving in several positions on the IRTA board, he became Executive Director in 2007.
I believe in this industry to the bottom of my toes. I have seen first-hand benefits at every level, from individual traders to Fortune 500 companies. Our core mission at IRTA is to spread a good word about the benefits of organised trade without money. We advocate the importance of having a barter strategy that provides an alternative marketplace for participants to increase their revenues, preserve cash flow and maximise underused assets. These powerful benefits are available in good or bad economic climates. There is a very important bottom line fiduciary responsibility for those managing business exchanges: you are creating an economic system, which brings with it the responsibility and duty to run the exchange in a professional and prudent manner.
Prior to 1979, the business ‘barter’ industry was an unregulated free-for-all in the USA. People were setting up multiple exchanges and disappearing after helping themselves to goods and services from members. IRTA set out to raise the bar to entry and establish enforceable professional codes of conduct. The first battle was with the authorities: the Internal Revenue Service (IRS) was carrying out random audits of exchanges and had no clear guidance on how to treat non-cash transactions. Members feared the industry would be outlawed.
IRTA lobbied the government and played a key role in framing the Tax Equity Fiscal Responsibility Act (TEFRA) of 1982, which recognises ‘trade dollars’ as US dollars for tax reporting. Business exchanges are now required to report ‘proceeds from barter exchange and brokerage transactions’ of all members to the IRS, so it is treated just like cash revenue. This obligation legitimised the barter industry and weeded out the cowboys.
In the 1980s and 1990s, IRTA created a members library containing advice and information about all aspects of setting up and running effective exchange systems. In 2012, it wrote an advisory memo on how to deal with exchange deficits, which is just as critical an issue to local exchange systems as it is to nations. Here is an extract:
The barter exchange must have the authority to assure adequate liquidity exists in the barter system by regulating the supply of trade dollars (money supply) needed to finance the smooth turnover of products and services being offered in the exchange. Simply put, there need to be enough trade dollars in the system for members to be able to buy goods and services they wish to purchase…
Excessive deficit spending by a barter exchange will cause serious liquidity problems that threaten the financial stability of the entire exchange. However, properly managed exchange deficits, which fall within the recommended IRTA guideline of 2.5 to 3.0 times the annualised average monthly trade volume (calculated only on one side), can increase trade volume and revenue by providing the right level of money supply sufficient to allow members to buy and sell freely within the system. (1)
Ron Whitney and his board take IRTA’s role as guardian of standards very seriously. Its Code of Ethics and Conduct is regularly updated.
We think through every aspect of running an exchange. What are the obligations of a franchisee? What about exchanges that try to poach others’ members? What kind of advertising is ethical? We have a ‘three strikes and you’re out’ disciplinary process for IRTA members who breach our code, culminating in termination of membership. What IRTA does is critical, we as an industry have to self-police.
The new frontier is the internet, which opens up great possibilities and challenges at the same time. Anyone with good programming and marketing skills can set up a website, launch an exchange system and persuade people touse it without having any real knowledge of how to run an effective exchange.
An IRS study of internet based barter exchanges found that the percentage of non-compliance for tax reporting was much higher for pure internet based exchanges than with the traditional regional non-internet-based barter exchange sector. The proliferation of on-line barter systems has made IRTA’s role of maintaining industry standards even tougher.
On the other hand, the internet also brings opportunities for innovation and growth on an international level. In 1997, IRTA created The Universal Currency Clearinghouse (UC) (2) to provide an on-line seamless international trading platform for its members. UC is an added benefit for IRTA members who traded 6 million ‘trade credits’ (6m US dollar equivalent) in 2011. About 80% of UC business is travel related and transaction fees are kept to a very low 0.25% to cover costs. Things have clearly come a long way since the early days of the industry when people were recording exchanges in a ledger book with a pencil.
IRTA’s role extends way beyond insisting its members conduct their business in an ethical and professional manner. IRTA also advocates to protect and preserve the industry against governmental regulations that could negatively impact the industry, as Ron Whitney explains:
Recently, an IRTA member exchange in North Carolina told us that the NC Bar Association was ready to prevent attorneys from participating in barter exchanges, based on an argument that to do so violated their State based Code of Conduct for attorneys. IRTA immediately appeared before the NC Bar Association to point out the importance of organised trade, that it was totally legal and widely accepted as an alternative payment system. It was not, therefore, a violation of their legal code. It completely turned the situation around: the Bar Association passed a resolution supporting attorneys participation in NC barter exchanges and the NC Bar Association opinion is now used as the model for the other States in the USA to permit the participation of lawyers in barter and trade systems.
Ron has also served on an advisory group to the IRS in Washington, helping to inform government officials about the potential economic benefits of reciprocal exchange. At least fifteen States are considering launching different types of currencies. IRTA members are involved in discussions with the Chinese government and the City of London too.
This is a very exciting time of huge activity as cities and counties running deficits see how can they use mutual credit clearing house systems to maximise their capacity. We are also seeing the first signs of consolidation and convergence of all sectors in mutually owned systems that benefit every level of society. Management, risk and profit are shared collectively between participants in quasi public-private partnerships that operate in the best interests of the whole. The future is limitless. We are going to see an explosion in the next few years as businesses, government and consumers learn of the powerful benefits that barter and trade systems can offer in solving many of the economic ills of today’s world.
(1) Irta advisory memo, Guidelines & recommendations for barter exchange deficits: