Regional Mutual Credit Clearing Association

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An excerpt from Thomas Greco's book, The End of Money and the Future of Civilization

Thomas Greco:

“Doesn’t it therefore make more sense to nurture the businesses that are already part of the local economy? Doesn’t it make sense to support those companies that are locally owned or managed and have a stake in the prosper­ity and quality of life in their home communities? Communities that have a high quality of life, an able workforce, and a clean and pleasant environment do not need to offer bribes to outsiders. Relocalization efforts cannot get very far without the creation of metasystems that support buying locally, selling locally, investing locally, and saving locally. Conventional political forms of money, and huge banking companies that are owned and managed by remote entities, by their very nature militate against relocalization. There is no need for antagonistic opposition to those entities; they can be made less relevant and less destructive by implementing creative methods that localize control over both exchange and finance.

I propose that groups and organizations that seek to promote healthy, sustain­able local economies should make it a priority to organize regional mutual credit clearing associations as the centerpiece of a comprehensive program. As these associations develop and grow, they will provide their regions with an increasing measure of independence from the outside forces that control conventional money and banking, enabling communities to rise above “the race to the bottom” that has resulted from the kind of globalization that has been architected and forced upon the world by the World Trade Organization, the International Monetary Fund, and the World Bank. The credit clearing exchange is the key element that enables a community to develop a sustainable economy under local control and to maintain a high standard of living and qual­ity of life.

The possibilities inherent in such a plan should not be judged by past expe­rience with local currencies and other exchange alternatives. Just as a modern jet aircraft bears little resemblance to the Wright brothers’ first airplane, so too are the more optimized exchange structures proposed in my book unlike any community currency, LETS, or commercial “barter” exchange with which people might be familiar. Based on the principles we have outlined, it is now possible to engineer and build exchange systems to carry heavy economic loads within local bioregions and to operate them according to sound busi­ness principles. This is a multistage project that will proceed in the following sequence:

1. Institute measures that promote import substitution.

2. Provide an alternative payment medium, independent of any political currency and banking establishment.

3. Issue a supplemental regional currency.

4. Develop basic support structures that strengthen the local economy and enhance the community’s quality of life.

5. Develop an independent value standard and unit of account. “


How to implement such a system?

Stage II: Mutual Credit Clearing Provides an Alternative Means of Payment

"The second stage is the most important and unique stage of the project. It provides an alternative means of payment based on the community’s own credit through the process of direct credit clearing.

Working capital in the form of conventional money is always scarce and expensive for most businesses. Mutual credit clearing is an extension of the common business practice of selling on “open account,” but it is done on a more organized multilateral basis, which has the effect of sharing the risks and enabling a participant’s sales to pay for purchases without the use of any third-party credit instrument such as conventional money. As a member of a mutual credit clearing exchange, a business can have an interest-free line of credit, it will be able to acquire the things it needs without the use of cash, and (because it accepts payment in the form of exchange credit) will be a preferred source of supply for others who are members of the exchange.

The allocation of credit in a clearing exchange involves the granting of an “overdraft privilege,” which means that a member’s account may have a nega­tive balance up to some specified limit. In allocating lines of credit, it is impor­tant (especially in the beginning) to allocate the greatest share of credit to “trusted issuers” — i.e., those that are well established, financially sound, and whose products and services are in greatest demand within the local region. This is the key to maintaining a rapid circulation of credits through the system, avoiding defaults, and preventing the excessive accumulation of credits in the hands of businesses that cannot easily spend them. In brief, the businesses that you wish to have accept community credits in payment are the ones that should be issuing them in the first place. By beginning with “trusted issuers” the value and usefulness of the community credits is quickly demonstrated beyond any doubt. As the process gains credibility and general acceptance in the community, more businesses and individuals will want to join the credit clearing exchange and as each member develops a trading history they too can earn an overdraft privilege commensurate with their volume of sales within the system.

Like any network, a credit clearing system becomes more valuable and useful as it continues to expand and a greater variety of goods and services become available within the network. By way of example one may note that the first fax machine was very expensive — but useless. As more fax machines were deployed and connected in an expanding network, the fax became more valuable to all users — even as prices plummeted and quality improved. The same will happen with clearing networks, but it is essential that the network and each node in it be properly designed and operated from the very start.

Stage III: The Credit of “Trusted Issuers” Provides an Alternative Currency for Regional Circulation

The third stage of the program will be the joint issuance of credits into the general community by the members of the clearing association. This is accom­plished by the association members buying goods and services from nonmem­bers who are outside the credit clearing circle. They make these purchases by using some form of uniform credit instrument, like a voucher or certificate, which all association members are obliged to redeem — not for cash, but for the goods and services that are their normal stock in trade. That provides a sound regional currency based on the productive capacity of the region’s leading enterprises, a currency that can circulate among any and all as a supplemental medium of exchange. The availability of such a currency to supplement the flow of official money insulates but does not isolate the local economy. Just as a breakwater protects a small boat harbor from the turbulence of the open sea, a sound regional currency provides a measure of protection from the turbu­lence of the global economy and centralized banking and finance.

This externalization of credits from the clearing association into the general community can be achieved using any of several available forms and devices. Credits may take the form of paper notes, coupons, vouchers, or certificates; they might be placed on stored value cards like the gift cards that are commonly issued by major retailers and are so popular these days with consumers; or they could manifest as credits in accounts that reside on a central server that can be accessed by use of a debit card and point-of-sale card reader.” (