Continuous Clearing

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Dil Green:

"It is almost a truism now to claim that the New Economy will be more collaborative – that it will function more like an interconnected ecosystem than a series of industry verticals – that it will have more circular flows with less extraction and less dumping.

But the money we have – its physics – works systemically against collaboration, since it imposes a competitive landscape around access to means-of-exchange liquidity and investment finance that makes collaborators always vulnerable to carpetbaggers of one sort or another – whether it is privatisers at state level, de-mutualisers with co-ops and building societies or activist investors demanding corporate break-ups.

Continuous Clearing is a simple mechanism that, within a collaborative context, changes this physics, without requiring any significant change to ordinary business practice or analysis. Very simply, within a collaborative context (defined by a mutual membership agreement with narrow and specific reach), all invoices are registered with a trusted third party in the role of service partner, and settled immediately using an internal credit unit – generally known as Mutual Credit Units (MCU). This third party continuously updates – and publishes – each member’s balance relative to the whole group. Thus if any member wishes to leave the group, one single payment (or receipt) will settle all outstanding commitments. No interest is payable on balances within the group.

It’s as simple as that. The immediate benefit is shared trade credit risk: since all invoices are paid on demand in MCU, the failure of a member imposes no immediate loss on any other member. The loss of a member from the group imposes a general loss in spendability of MCU, but in a sizeable group, this becomes marginal. Within the group, means-of-exchange – purchasing power – is limited only by members’ willingness to trade – there can be no externally imposed credit crunch.

Onto this simple mechanism, some simple layers are added which further reduce risk – credit/exposure limits and settlement periods. At the end of each settlement period (which could be as short as a few hours, or as long as a few years – depending, as do all policies, upon members’ joint decisions), each member receives or makes a single hard currency (ie pounds or euros) payment that brings them back within their account limits.

In this context, collaboration is rewarded by the underlying physics of the means-of-exchange: as members see the reduction in risk, they are likely to increase their maximum exposure to the other members – generating increased liquidity and opportunities for intertrade.

Clearly, there are many detailed issues to be addressed around this system. Happily, there is significant experience with such networks that provides a wealth of wisdom around these issues. The Swiss WIR Bank has been operating with a similar approach since 1933 with a turnover in the billions, and more recently the Sardex network in Sardinia, launched in 2009, now handles over €50m annually.

Of course, such groups cannot get too large, since this would make it hard for any member to assess how trustworthy the group is as a whole. This limits the pool of ‘internal’ trading partners and thus the benefits of membership. The issue is addressed and resolved by federating such groups into ‘groups of groups’ for further risk reductions and liquidity benefits.

In the context of a ‘group of groups’, the internal willingness to pool trade credit becomes, from the point of view of other member groups, a form of mutual assurance – when offering credit to an established group of businesses as a single entity, default would require the collapse of the whole group, rather than any single member. Once again, credit risk is reduced, confidence is increased. Several tiers of such networks can cover all types of condition – geographical localities, bio-regions, continents, most obviously, but also communities of interest and of practice, industry horizontals and verticals.

Mutual Credit Services have developed software on the basis of the Credit Commons protocol that manages such federated network and third party service provision." (