Credit Commons Accounting

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Credit Commons:

"There are many different ways of accounting and things to be accounted for; Despite its simplicity, I've had some difficulty in the past explaining mutual credit accounting, even to educated people, so this blog is an attempt to express it clearly, for the record.

The Credit Commons is a way of recursing mutual credit accounting. A mutual credit ledger contains a list of accounts and transactions between them, denominated in a common unit of account. There a no assets 'on' the ledger, nothing ever enters or leaves the ledger. It is purely a record of credits and debts between the accounts. For that reason I sometimes think of it as 'closed' accounting.

When a debt is incurred between two account holders, say for 10 units, the debtor's account is decremented by 10 and the creditor's account is incremented by 10. Thus the sum of all accounts on the ledger never departs from zero. When an account's balance = zero that means it neither owes nor is owed by anyone else on the ledger. If the system is being used as a medium of exchange, zero means that that the user's exchange is complete, that their debts cancel out their liabilities, that their production and consumption are balanced with respect to the other accounts.

As a medium of exchange system there is usually a minimum and maximum balance for each account to prevent them straying too far from equilibrium and reduce their risk of their not being able to return to zero.

If accounts are not returned to zero, or stray to far from zero then the system can become distorted, with members struggling to earn or spend the units, or perhaps trading them at a discount or a premium.

That is why, in the event of an account holder departing with a positive or negative balance, the account must be returned to zero before it can be closed, which means the surplus or deficit must be shared out between other account holder according to some pre-arranged system. Typically there might be an account for that purpose which could collect transaction taxes, membership fees, or even redistribute prizes in case of a surplus.

Another way to think about mutual credit is as a rolling contract. All signatories agree to return their accounts to zero, and the ledger simply records their obligations to earn or spend before they can withdraw from the contract.

Credit Commons accounting means joining existing accounting systems together using the Credit Commons mutual credit protocol."