Commercial Credit Circuit

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By Bernard Lietaer, Gwendolyn Hallsmith:

"A Commercial Credit Circuit, or C3, is a financial innovation that resulted from work done in Brazil by Social Trade Organisation, a Dutch research and development NGO. Uruguay has implemented C3s on a national scale and is now accepting the C3 form of currency as payment for taxes.

Here’s how it works. The process starts when one participating small- or medium-sized business gets insurance on an invoice or other payment claim. This insured invoice is then used to back a complementary currency—let’s call it BusinessBucks—issued through a computerized transaction for the same amount as the invoice. The BusinessBucks are then used as liquid payment instruments within a business-to-business network. Each recipient of BusinessBucks can either cash them in for dollars, euros, yen, pesos—the conventional bank debt money—at the cost of paying the interest to the point the invoice matures, or the recipient can pass the BusinessBucks on, without cost, to pay its own suppliers. At the maturity date for the invoice, the corresponding amount gets paid in conventional money, either by the company to which the invoice was originally issued or, in case of default, by the insurance company that insured that invoice. Also, at the maturity date, all the BusinessBucks that were created on the basis of that invoice become convertible to conventional money at no interest cost.

This process injects working capital into the C3 members’ network at a substantially lower cost than what would otherwise be possible because the insurance costs less on an aggregate level than compounding interest from bank loans in a conventional credit system (in Uruguay, the insurance cost amounts to 1 percent of the invoice). Given that small- and medium-sized firms provide the vast majority of all private jobs, the C3 mechanism systemically contributes to the stability of employment and of the entire economy.

If governments, including regional or city governments, accept C3 currency in payment of taxes, this not only encourages all other businesses to accept C3 but also provides additional income to the government from transactions that wouldn’t otherwise take place. Furthermore, that additional income becomes automatically available in conventional national currency at the maturity of the original invoice. Thus, accepting C3 units does not upset any existing procurement policies. Uruguay is the first country that has followed this strategy, accepting C3 units in payment of all fees and taxes.

The C3 approach is probably the most dependable way to systemically reduce unemployment, and accepting C3 units in payment of taxes is the most effective way for governments to support the spread of the C3 system. Furthermore, businesses with an account in the same regional network have an incentive to spend their balances with each other and thus further stimulate the regional economy. C3 provides a win-win environment for all participants and, as a corollary, also promotes other collaborative activities among regional businesses.

This win-win approach also includes the mainstream financial system. As the entire C3 process is fully computerized, it significantly streamlines lending and insurance administration and management for the insurance and loan providers. The cost to a small- or medium-sized business is lower than conventional financing, and the banking system makes more money because servicing small- and medium-sized firms becomes a low cost, low risk, and larger volume business for banks. This is because the credit lines in a C3 system are negotiated with the entire network, providing the financial sector with automatic risk diversification among the participants in that network." (