= "Credit clearing means that payments between businesses can be ‘cleared’ if loops can be found, in the same way that if I owe you £10 and you owe me £10, then we can just clear it and neither of us has to find £10". [1]

Description

Thomas Greco:

"Credit clearing is the highest stage in the evolution of reciprocal exchange, which, in effect, makes money as we’ve known it obsolete. The fact is that goods and services pay for other goods and services, whether we use money as an intermediate payment medium or not. Direct credit clearing makes the use any third party credit instrument (money) unnecessary.

A credit clearing system is an arrangement in which a group of traders, each of whom is both a buyer and a seller, agree to allocate to one another sufficient credit to facilitate their transactions among one another. The rest is merely bookkeeping.

In such a system, the total amount of credit outstanding at any point in time can be thought of as the money supply within the system. That will be the sum of either the positive balances or the sum of the negative balances. These two sums of course must always be equal to one another. Note how the money supply fluctuates up and down as credit balances are spent and debit (negative) balances are reduced when sales are made by those who had a debit balance."

(http://beyondmoney.net/2007/08/06/credit-clearing-pure-and-simple/)

Status

Tomaž Fleischman:

"Slovenia has been the most successful, but it’s not the only one. There is something similar (but with different algorithms and techniques) in Romania, and there are things happening in Bosnia-Herzegovina. I don’t know of any other national-scale projects. But there are a lot of local projects, for example in Italy, Spain and the Netherlands. Portugal introduced legislation in 2019. Their ideas was not to run this as a govt. agency, but to seek a public-private partnership. The legislation helps in setting up these schemes. But as yet, they haven’t been able to find partners to run this at the national scale."

(https://www.lowimpact.org/posts/how-credit-clearing-can-change-the-global-monetary-system-interview-with-tomaz-fleischman-of-informal-systems)

Source: From a conversation of Tom Woodroof of Lowimpact and Mutual Credit Services with Tomaž Fleischman of Informal Systems about Credit Clearing.

Interview

From a conversation of Tom Woodroof of Lowimpact and Mutual Credit Services with Tomaž Fleischman of Informal Systems:

Tomaž Fleischman:

* What are the requirements for setting up a successful local scheme?

TF: The crucial element is the existence of trading loops between local businesses. Often, local business networks are chaotic, and it’s difficult to find loops. Our experience is that as a network grows, at some point, there will be what mathematicians call a ‘phase transition’ – suddenly, loops appear everywhere. It’s like a switch – there are no loops, then suddenly, they’re everywhere. Reaching this point is the challenge for grassroots projects. Interestingly, it’s not about the number of participants, it’s about the density of the network. What you’re looking for is on average, 2-3 (and ideally, more than 3) obligations between network members. If this is the case, you’ll hit the phase transition point relatively soon. So you don’t need thousands of business. If there are maybe 50-100 businesses with more than 3 obligations between members, you’ll reach the phase transition and find loops.

* Can you say more about the dynamics of these networks, and what has surprised you / continues to surprise you?

These networks tend to be chaotic. Firms are connected to each other randomly. But there are rules – the most important being the ‘preferential attachment’ rule. It’s a simple rule that states that a new participant in the network is more likely to attach to big players in the network than small ones. The result is that you get a highly-connected network that is clustered, with distinct ‘hubs’ represented by big players. These hubs are connected to each other, so that the whole network becomes connected, and that there are very few steps between any two participants (maybe 4-5 steps), because a lot of traffic goes through the hubs."

(https://www.lowimpact.org/posts/how-credit-clearing-can-change-the-global-monetary-system-interview-with-tomaz-fleischman-of-informal-systems)