Towards a System of Resilent Finance and Banking based on Peer Credit

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A proposal by Chris Cook:

Resilient Finance – from Banks to Banking: 21st Century Problems cannot be solved with 20th Century Solutions

The Problem

The basis of credit is firstly the capacity of people to provide goods and services, and secondly the use value of productive assets such as land, factories, machinery, and increasingly, intellectual property.

Unfortunately, we don't trust each other enough, and in order for credit or IOUs from people we don't know to be acceptable, we came to rely upon middlemen/intermediaries to come between sellers and buyers, and asset owners and lenders, in order to guarantee performance. These credit intermediaries provide a valuable function by putting their capital at risk to back their implicit guarantee.

Due to many banking failures over the years, centralised banking system evolved where the guarantee of the banks was itself backed by government Treasuries and Central Banks.

Unfortunately, this private credit creation got out of hand and created monstrous bubbles in property prices, and left a legacy of unsustainable debt; imbalance of wealth; general shortage of purchasing power and systemic shortage of bank capital, which has indefinitely crippled the 21st century system of public and private credit upon which rely.

The Solution

Back to the Future

Peer to Peer – People-based - Credit

The solution is to create a system of 'guarantee society' agreements whereby businesses and individuals may extend credit directly (or 'Peer to Peer') and this credit will be backed by a mutual guarantee agreement.

It was Stalin who said: 'Trust, but Validate' , and validation for such a mutual guarantee would come from a combination of user subscription (to cover costs) and a charge to both sellers and buyers for the use of the the guarantee.

This is close to how the present VISA system operates. There are no deposits in this credit clearing system: and substantial transaction charges are made upon sellers, while buyers pay interest on outstanding balances.

Peer to Peer credit would essentially be a community VISA system owned in common and operating 'not for loss'

As for 'Guarantee Societies', these have quietly existed in the City for almost 140 years, where P & I Clubs share pooled risk – such as the risk of shipping losses – in a system which has been managed by the same service provider for 135 years.

Peer to Asset Credit

Any asset owner may – and many do - extend undated credit redeemable in payment for the use value of production of his asset, but this tends to be restricted to private businesses.

The innovation proposed is for owners of land & buildings, to issue undated credits redeemable in payment for rental value: eg a £1.00 Rent Credit. These would be sold or exchanged for value at a suitable discount, so that a £1.00 credit sold for 80p would give a 25% return. But the rate of that return would depend upon whether there is a complete building; the actual rental charged; whether there is an occupier; and whether he he is willing and able to pay the rental.

This is direct 'Peer to Asset' credit, and while there is a return, which comes from the use of the land and the capital invested in it, there is no payment of money for the use of money (compound interest). Such credit will out-compete conventional credit, because exchanging value for nothing is simply inefficient.

There is in fact a good name for such undated credit: Stock This described the instrument which underpinned the system of public credit which was first privatised by the (then private) Bank of England in 1693.


For several hundred years, the Exchequer financed and funded English sovereigns by issuing IOUs, in the form of wooden tally sticks split into two parts. Individual creditors were given the Stock as a receipt and as a credit token which was returnable to the Exchequer in payment of taxes: the Exchequer retained the counter-stock or foil to be matched against returned Stock.

By the late 17th century there were at least £17m worth of tallies in issue at a time when the total cost of the operation of the Kingdom was perhaps £2m to £3m per annum. Under professional management of credit managers/service providers (formerly known as banks), and the accountable supervision of a monetary authority (formerly know as the Bank of England), local Treasuries branches could issue, in virtual form, undated Stock which would be redeemable in payment against taxes, or against the rental value of property held in common by a custodian.

Stock would be issued at a discount – eg a Unit of £1.00 of Stock sold for 90p – and the rate of return depends on the period over which the Stock is returned to the Treasury in payment of taxes.

The very phrase rate of return alludes to this long forgotten practice of returning Stock to the issuer for cancellation of his IOU.

From Banks to Banking

Why on earth would banks wish to become service provider partners administering the system and providing services? The answer is that as banking service providers banks would only require the relatively small amount of capital necessary to support their operating costs. They would no longer require capital to support credit risk.

Moreover, this process of transition by banks is already well under way, and is in fact responsible for the current massive bubbles in equity markets and commodity markets. These bubbles are caused by direct investment in these markets, not as commonly and wrongly supposed, by 'speculators' in search of a transaction profit, but risk averse investors who wish to preserve the value of their dollars by investing in ownership of anything but dollars.

Resolution and Transition

The issuance of land – based Stock provides a way of resolving unsustainable debt through a once and for all conversion from an existing system of people-based credit backed by land to a new system of land-based credit.

The transition to a low carbon economy will de financed and funded from the issuance of energy-based Stock, and the simple fact that investment in renewable energy (Mega Watts), and energy savings (Nega Watts) enables Stock to be issued which costs literally nothing to redeem."