A recent post in an Alternative Currency forum suggested that I explain how to discern good currencies/exchanges from bad ones. To put it simply the person requesting this knew that I had identified and exposed some of the crooks in the industry and wanted some tips; fair enough. In this post I explain HOW a barter/trade exchange dies – it’s usually always from inflation [a devaluing of the currency] – and the reason can be anything on a scale of outright fraud – to management incompetence – to simple adversity. I give practical examples of five failed/failing Trade Exchanges and have practical advice for both exchange owners and members.
HOW Trade Exchanges Fail
Most failures occur as a result of INFLATION.
Inflation in a barter economy is best viewed as a devaluing of the Trade Dollar, when the Trade Dollar is not respected or trusted. This is most commonly seen by traders seeking to:
- Inflate the value of their goods in the particular barter economy. Sometimes they will happily sell a product for cash at say $10.00 but ask $T12.00, $T15.00 or even $T20.00 in Trade Dollars. I recently posted about how I paid $T175.00 for business cards using Bartercard but could buy the same item from the same guy elsewhere for $99.00!
- Ask for a percentage of the sale in cash, often seeking to receive their profit only in ‘funny money’.
In both these cases the perceived value of the Trade Dollar is less than the Legal Tender equivalent. This is Inflation.
The consequences are that the members all find it harder and harder to trade – they can easily sell, but find it harder to buy. Members are all desperately fighting over a shrinking honey-pot. It’s a bit like musical chairs – the last one standing loses!
WHY Trade Exchanges Fail
While the process of failure is usually the same, the REASON they fail can be varied but all comes down to the failure of management. This can be through:
- Deliberate fraud;
- Opportunism (aka Greed);
I now give some examples of failed and failing Trade Exchanges and analyse their downfall.
1. New Zealand Barter
New Zealand Barter was the original commercial Trade Exchange in New Zealand that ran well for quite some years during the 1980s/early 1990s with inflation concealed. As illness overtook the owner, inflation started to become first visible, then a major problem. New memberships ceased and members started dropping out. Propped up for a few years by one diligent worker, it eventually folded with all members [all were in credit] incurring a total loss. Failure was a mixture of opportunism (2) and adversity (4).
A creation of Australian conman Daniel Evans in New Zealand, the Ozone Trade Exchange grew in the early 2000s into what appeared a vibrant exchange, with good membership numbers and healthy trading, but almost all to the exchange owner. On failure the debtors ledger was entirely the House Account and all members were in credit and like NZ Barter, all members incurred a total loss. The Trade Exchange failure was as a result of deliberate fraud (1).
Subject to my in-depth investigation in Q4, 2013/Q1, 2014, Ormita was a major international con, with victims in dozens of countries. All members with credit balances lost all, however trading was infinitesimal and losses small for members. Most losses were those who attempted to establish Trade Exchanges and got screwed over with ‘stories’ from a master story-teller! Failure was a result of deliberate fraud (1).
Tradeqoin is the flagship commercial Trade Exchange of self-appointed Complementary Currency ‘experts’ Qoin, in the Netherlands. Tradeqoin is a failing/failed Trade Exchange with rampant inflation (this results in high member dissatisfaction) and inexperienced management who consistently misrepresent their membership figures*. Tradeqoin purchased a small Trade Exchange with 75 members (Barter Your Business), added members of previously failed businesses, a few from a small regional Green Dollar group (Achterhoek region) and runs a Freemium business model – something simply impossible in a highly attention-demanding industry. Wild projections used for their Crowdfunding Prospectuses; lack of meaningful customer service and key staff departures, all indicate serious management inexperience. Their failure is incompetence (3) with a little bit of fraud (1) although there may be some of the other factors as well.
Bartercard’s woes go back more than two decades with the Australian management running ultra large house account deficits, now into the multiple millions. This inflation has been concealed deliberately by “creative accounting” but can be seen from the difficulty that members have securing value – it can be done but it’s getting harder and harder. The business survives through aggression as well as bringing in new members as the old ones drop off – many very unhappy.
Recent efforts by the new owners to internationalise repeat their previous unsuccessful forays offshore. I’ve explained at length previously how the exchange is run like a Ponzi scheme, where old members (and Bartercard insiders) grab opportunities to get value back from the new members ‘keen to trade’. The Bartercard Trade Dollar is valued at 20c in the AUD for a cash conversion, 50c in the AUD by experienced traders and 80c in the AUD for newbies. While an existing business with the potential to carry on trading, Bartercard’s Trade Dollar is in essence long-gone bankrupt. Their failure is a mixture of fraud (1) and opportunism (2).
Nothing is what it seems in this industry.
While there are a few ethical operators, for a Trade Exchange owner, the opportunities to profit are too great for many. Many who have failed, or got into a pickle may have started out with good intentions, but it’s very tempting and easy to take the best products offered in your exchange for yourself. It’s easy to buy something here or there using your own ‘funny money’ and find your house account growing. Unless you have a co-operative ownership model where the members own the exchange, these things are easy to conceal – nobody but the owner of the Exchange would ever know what’s happening under the hood!
There are hundreds of clues and advice that could be given on this topic, but even though research prior to investing is not easy, it SHOULD be done. Bartercard particularly has a lot of ex-members (even ex-franchisors) who are VERY unhappy with their conduct. They will share the pitfalls based on their experiences. Bottom line is to be very careful!
Ask key questions from experienced traders within the system . Remember that there are often members on the inside, not listed who know how things work and get the first options on the better, more hard-to-find goods. When something is offered for sale, and it sells, call the seller and ask who bought it. If it is the exchange owner, or an unlisted member, then you will see insider trading that doesn’t benefit the membership as a whole. In time that will result in serious inflation, especially if the Exchange owner’s house account grows out of control.
As the quintessential ‘trader from hell’, I’ve played with every trade exchange, Green Dollar and barter offering I could find in my home country of New Zealand over some decades. Since immigrating to Samoa and commencing my investigative blogging, I’ve exposed a few scams and cons, as well as providing extensive commentary on the industry.
Ruffling a few feathers has gone with this territory.
I have a couple of words for those whose feathers have been ruffled, “Too bad!”
At a personal level I can and do talk to anybody about anything. People might not realise this but behind the scenes I can and do talk to crooks and conmen all the time. Even the master conman Daniel Evans and I shared a beer for an hour or more after a tense face-to-face interview in 2009.
At a professional level however I am ruthless to seek and expose the truth. To the people who want to hide, and misrepresent themselves in some way, I say that I will give no quarter, ESPECIALLY when the little guy loses or hurts as a result of your various deceptions.
Let it be known that I live for only one reason – to hear the words “Well done good and faithful servant”. In a more here-and-now sense, answering the phone and hearing or receiving a note from the Tipline with the words. “Thanks Dennis. You’re doing something that nobody else dares to do and it’s about time somebody did!” also makes my day.
I trust that this post has brought a smile to your dial and lifted you for the day. It’s been fun to explain how things work in an industry that’s a ‘little murky’ to the beginner.