First of all I want to say that overall I like the concept and it will help to recognize people making valuable contributions here. However, there are ways to exploit and I would like to discuss here so that the moderators can make necessary tweaking.

1) Suppose there is a member here with 4 accounts having full member accounts. He will have 400 merits in total and thus at most 200 Smerits. Those 200 Smerits can be used to create 20 member accounts with 10 merits each. Now those 20 accounts will have 5 merits each and thus 100 Smerits in total. It can be further used to create 10 member accounts with 10 Smerits each and so on. This can be done on higher scale if a member has higher level accounts or higher number of accounts.

2) I read the official thread and it mentioned that there are merit sources. What if the merit source itself starts selling merits or creating multiple accounts and sending them merits.

3) Actions can be taken against people involved in buying and selling. For instance, if a member with spammy post receives a merit for it, it is doubtful and action can be taken against him. But what is someone abuses this to get accounts banned or negative trust. More like negative SEO which is very common in IM.

I hope moderators have the necessary preparation for combating against these. If you have some limitation of the current merit system to add post below and I will add it here.