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The pad standard

Zero Balance Systems
In most LETS, currency or credit is created when members transact with each other. Those are zero balance systems, meaning that some members have positive balances, some have negative balances, and if you add all the balances together you get zero. Example: Mary sold four apples to John for one credit each. John now has -4 credits and Mary has +4. Between the two, they have zero.

The Pad Standard
Cloth Bank is also a zero balance system, but it's different in that shares are created only when members deposit pads into the bank. As long as the bank has inventory, it will always have a negative balance and members will always be positive. For every share that members hold, there is pad in the bank, similar to the way there used to be gold in the treasury for every dollar that people held.If the bank vaults were empty, everybody's balance would be zero.

The bank is 100% member owned. If the total value of the bank's inventory is 300 shares and you are holding 15 shares, you own 5% of the bank.

Values and Exchanges
Members may exchange shares for goods with other members, and shares can always be used to withdraw pads from the bank. For a common reference, a share is about equal to a US dollar.

When a pad is originally deposited, the value must be agreed upon by the depositor and at least three other members. If anyone disagrees on the value of a deposit it will go to a community vote.

Unlike other currencies, shares will not increase in value over time, so there will be no "buying low and selling high." If anything, shares will decrease over time if they are tied to unloved (illiquid) pads that sit in the bank.

Maintaining Liquidity
A difference between the gold standard and the pad standard is that the pads are meant to be liquid. We don't want them languishing in vaults for long periods of time instead of being used. This is why deposits are "taxed" at 10% while withdrawals are not.

In order to keep pads liquid, the bank's inventory will be revalued periodically and members' shares will be adjusted. For example, if there are five pads in the bank valued at five shares each and they have been sitting in the bank for over six months, they could be revalued to three shares each, which would reduce the value of the total inventory by ten shares. The total value of the bank would go from 300 to 290, and the 5% owner mentioned above would now hold 14.5 shares instead of 15. Every time these adjustments are to be made, they will be voted on by the community.