What is a Trade Exchange?
A trade exchange is simply a system of credits and debits, which is used by businesses for the purpose of exchanging goods and services. Participating in a trade exchange is similar to bartering, only it is far more efficient and flexible. Each business owner has an account, which he or she can use to purchase anything that is offered by another business in the trade exchange. Food, clothing, auto repair, advertising services, home repair, hotel rooms, health care, or just about anything you can imagine is available through a trade exchange.
You can use trade credits exclusively (in Santa Cruz, we call them “Sand Dollars”) or a combination of trade credits and U.S. currency to make a purchase, depending upon the policy of the particular business that is offering the goods or services that you want.
As a business owner, you can literally create the currency that you need, when you need it, and it’s entirely legal! What’s the catch? You have to be willing to provide goods or services, up to at least the amount that you want to be able to spend, to other members of the exchange. That’s all there is to it. This way, you can use your unused service capacity or unsold inventory (which you buy at wholesale, but trade at retail!) to make purchases instead of using cash. Purchases can be for business or for personal use.
This system has been used successfully since 1934 by the WIR bank of Switzerland, which now claims over 60,000 members, and is now in use by hundreds of trade exchanges worldwide. Over $30 Billion in commerce is done annually by trade exchanges, and their popularity is growing rapidly.
As income received in trade credits is taxable, the trade exchange generates a 1099B (barter) form for each business, to make bookkeeping simple. Some business owners prefer to use a trade exchange exclusively for business purchases and expenses, so that at the end of the year, their tax liability from the trade exchange will be zero. Other businesses prefer to use the trade exchange as much as possible for personal, as well as business purchases, so that they can keep their cash for things that cannot be paid for through the trade exchange, such as bank mortgages and State and Federal taxes. However you choose to use it, the end result is higher profitability for your business, improved relationships with other business owners, a stronger local (or regional) economy, and reduced use of fossil fuels for transportation.
The advantages of a trade exchange are multiplied when the customers and employees of local businesses are included. This can be done through offering rewards in the form of Sand Dollars to your customers, or by paying employees bonuses or partial salary in Sand Dollars, instead of US currency. This way, nearly everyone in the community can participate, and everyone associated with a local business is given incentive to shop locally!