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." (


Establishing Store of Value Mechanisms in Mutual Credit Systemsd

Dil Green:

"The internal credit units – MCU – used within Continuous Clearing groups provide a means-of-exchange, but MCU are not intended, by design, to provide long-term store-of-value; a large positive balance is more an indication of exposure to the future willingness/ability to trade of other group members, where risk clearly increases over the longer term, than it is a condition of wealth.

The increased liquidity and freedom from interest-bearing debt offered within a Continuous Clearing network requires this separation of means-of-exchange functionality from store-of-value – if MCU worked as long-term, reliable wealth, the incentive would be to hoard them, rather than spend them on – reintroducing systemic shortage of liquidity. Continuous Clearing groups encourage the spending of surplus credit – for a dynamic, high turnover economy with a money supply that ‘breathes’ – expands and contracts according to need.

But economies need store-of-value mechanisms – for investment, for savings, for insurance. Our current money works poorly in this role. Its dual use as means-of-exchange and store-of-value results in difficult-to-predict fluctuations in spending power that make it hard to rely on for anyone not in the 1% – whether as a result of inflation or the ever present crises around pensions and asset bubbles of all kinds.

Use Credit Obligations (UCO) provide a store-of-value tied to more objective fundamentals, such as energy, land-use and the like. On a smaller scale, they can equally be tied to productive output of any standardised kind. Essentially the issuer guarantees to accept such tokens as payment for a unit of production under specified conditions.

Clearly a stock of ‘square metre rent tokens’ or ‘kilowatt hour tokens’ from an institutional issuer provides a reliable store-of-value to ensure security of location and access to energy that is inflation-proof – perhaps not in monetary terms, but in what matters for security: real utility – since these tokens represent an actual quantity of something tangible and inherently related to consistent human needs.

It is the ‘investment’ use of these tokens that we are most interested in here. If a community wishes to put up a wind turbine, say, using the UCO approach, they can raise investment finance by selling UCOs at some discount. This provides finance without debt or giving away equity (governance structures, not discussed here, can bring investors inside the project to address concerns around risk management). Investors can achieve their desired rate of return and realise it either directly, by buying energy, or by selling these tokens at their market value (which will tend to increase as the turbine gets closer to completion and then settle once it comes on stream)." (