= mutual credit project in Ireland, proposed by Feasta
Both a project and a concept.
"What is a liquidity network?
A system for creating and managing local electronic trading currencies in a way that encourages local trading and improves cashflow.
Who owns a liquidity network?
Ownership is vested in a trust set up to run the network in the interests of all the users. Thus a network is not owned by the users but by a body which they collectively control. This arrangement is designed to prevent the users of a network deciding at some point in the future to sell it out to a commercial company, such as a bank, for their personal profit in the way that many building societies were demutualised in Britain. The intention is that a liquidity network should become a community asset. As local authorities and local traders are key participants in any liquidity network, they have to be represented on the controlling trust." (http://theliquiditynetwork.org/faqs-2/#faq_21)
"The aim of the Liquidity Network is to address the Irish national liquidity problem – the slow down in economic activity triggered by the credit crunch.
Currently virtually all economic activity is powered by debt based credit – individuals and businesses borrow in order to finance their activities. Using the credit released by these loans they employ or do business with other individuals/ businesses who in turn do business with their suppliers and so on. There is thus a multiplier effect whereby the initial credit fuels transactions worth many times more than the value of the initial loan.
When the ’seed’ credit from banks dries up, as in the current crisis, the multiplier effect which normally helps to create liquidity efficiently acts in the reverse way and removes liquidity quickly.
FEASTA’s Liquidity Network aims to address this problem by creating an alternative ‘liquidity stream’ which is not based on debt." (http://theliquiditynetwork.org/about/)
- Feasta is making a determined effort to set up a system that allows participants to exchange goods and services with each other without anyone going into debt. Although our system will operate in parallel with the existing money system, it will not be a money system (See Note 1). The units used within our system will be units of measure analogous to kilos or metres. Like these measures, they will have no intrinsic value and will only operate as a counting device to give participants a way of comparing and expressing the value of the goods and services being exchanged and ensuring that some participants do not take more value from the system than they put in. Participants will not own the units in their account at any time.
- The new system is urgently needed because the current debt-based money creation system is failing and, in any case, is unsuited to a world in which the total value of trade being done in a year is more likely to contract than expand. If trading in a contracting economy is to stabilise at a level which at least allows basic needs to be met, the introduction of a new exchange system which is not based on the continued willingness of people to go into debt is required.
- The new exchange system will be owned and controlled by the participants as it is they who give its units their value. It is envisaged that the users will elect a management committee which will operate under a trust deed setting out the basis on which the system is to be run. It is also envisaged that the management committee will hire a contractor to operate the system from day to day or, if the commercial banks become involved, pay a fee for the use of their systems.
- As the system's aim is to give participants the liquidity they need to be able to trade with each other, it is to be called the Liquidity Network. Its units are to be called "quid".
- The system could begin in two ways. One would be to cater initially for small- and medium-sized businesses and to open to private individuals later on. This course will be adopted if it proves impossible to involve the commercial banks and/or government in the project. In that case, firms joining the system would be asked to give the names of the companies from which they expected to earn quid and those from whom they expected to buy in quid. They would then be given a float based on the amount of business they did with the companies in the previous year and the timing and lumpiness of those transactions.
- If the commercial banks agree to operate the system in parallel with their system for euros, the public could be invited to open accounts right away. A decision would then have to be made about the proportion of the initial issue of quid that went to the public. We envisage many of the personal transfers of quid would be made by mobile phone.
- The velocity of circulation in each account will be monitored by the system's software and, if an account's velocity is tending to rise, more quid will be assigned to that account. If the velocity is falling, quid will be removed. Accountholders will be provided with information so that they can know when to expect quid to be added or removed. The overall number of quid in the system will be adjusted each month to keep them scarce in relation to the total amount of trading going on and thus maintain their value.
- Quid must not be used for capital investment. Funding for that must be sought in the conventional money system. The network will provide working capital rather than investment capital.
- No credit will be extended in the system. Accounts will not be allowed to go into deficit floats will always be generous enough to prevent this provided trading is reasonably managed. If a business is growing, or plans to use quid for more purchases, it can ask for a bigger float. Credit will be avoided in the following way. A participant dispatching goods or providing services to another member of the network will issue an invoice immediately the goods are dispatched or the services performed and enter the charge against the customer's account in the way hotels sometimes do with credit cards to ensure that their bill will be paid. The quid involved will be placed in escrow and will no longer be available to the accountholder for other trades. When the goods have arrived and been checked, the recipient will notify the system that the sum held in escrow should be released to the supplier's account.
- Even if we wished to do so, it would be impossible to prevent an exchange rate developing between the quid and conventional currencies. The Network operators will not sell quid for euros or euros for quid but some participants undoubtedly will. There will be no target exchange rate between the quid and the euro although for the first few months, the number of quid in the system will be managed so that the price of a quid is roughly one euro.
- The Network will charge participants a non-returnable fee in euros when they join to cover setting-up and promotional costs. Thereafter members will pay a small monthly charge in euros to cover the system's costs that cannot be covered in quid and also, in quid, a percentage of their monthly turnover. The management committee will set these charges. Inactive accounts on which the euro fee is not being paid will be closed.
- If an account is being closed, the participant must return the net amount of quid issued to it during its life. Euro account fees will continue to accumulate until this is done. If unpaid account fees reach a set level, the committee will buy the quid needed to close the account and will pursue the accountholder for the total amount of euros involved through the courts. (See Note 2)
- Taxes on transactions in quid will have to be calculated in quid and then converted into euros at whatever is the rate on the day of the transaction and invoiced separately in euros. This is because if participants charged the taxes in quid and then bought euros with them when the tax was due to be paid, the purchases would tend to greatly reduce the value of the quid in relation to the euro as there is unlikely to be as big a flow of euros into the system as quids to be moved out
- We will adapt the open-source Cyclos software for the system. We will make our ideas and software freely available at all stages so that others have the chance to use and adapt them."