Rethinking Money Part 4: Credit Clearing Cooperatives for Economic Democracy

We can create decentralized, free market economies that are more stable, prosperous, and humane. And we can do it all without money.

One way out of the dilemmas created by the kind of money we use and our dysfunctional banking system is to transcend money entirely. In the process, we can democratize the economy by decentralizing control over it. In doing so, we increase the freedom of all the economy’s participants, increase the resiliency of the economy, and solve major problems like debt, inflation, and so forth.

Transcending money is not as hard or as esoteric as it sounds. We simply use a process called credit clearing, which has been employed by banks for centuries.

What is Credit Clearing?

The idea behind credit clearing is actually very simple. There’s an example to illustrate it.

Suppose that you have a friend named Al that owns the corner diner. Al lets you put your meals on a tab and pay for them at the end of the month. So you sign an IOU for Al every time you eat.

Imagine that you keep several chickens on your property. You sell the eggs to another friend of yours named Bob. You let Bob put the eggs on a tab and pay for them at the end of the month. Bob signs an IOU every time he buys eggs.

Now let’s say that the IOU Bob gave you for this month happens to be the same amount as the IOU that you gave Al for this month. You, Al, and Bob are all high school buddies. Al knows Bob will pay his bills. So you just hand Bob’s IOU to Al and Al cancels your debt to him.

In this transaction, no money has changed hands. You were able to both buy from Al and sell to Bob without any money at all.

This is the essence of credit clearing. All exchanges are done with IOUs.

If you scale this scenario up to hundreds or even thousands of people, you have a credit clearing cooperative.


A credit clearing system IS NOT bartering. When you scale this up to the size of a cooperative, you use your IOUs like cash so you do not have to find someone who’s needs align perfectly with what you produce, as was done in this limited example.

Credit Clearing Cooperatives: Local Free Market Economies

Credit clearing cooperatives enable people to band together with others that they trust, form their own free market economy, and innovate new economic instruments in any way they want. They can then join their cooperatives into large networks that provide all of the goods and services they need. And they can do all of this without any currency at all.

Digital Cash that's Not Currency

Instead of currency, all participants in a credit clearing co-op used certified IOUs that they issue themselves. Their "money" comes into being when they get ready to spend it. The system cancels their "money" when they provide goods and services to the co-op system and accept credits as payment.

Legally, your IOUs are personal checks. But instead of redeeming your checks with US dollars, you redeem them with goods that you create or services that you provide. So a credit clearing cooperative is a way of doing business with checks rather than money.

A participant in the credit clearing system issues IOUs with the tools provided by Cognisaya, LLC. The IOUs, which are called credits, are purely digital.

Let's stop a moment and draw an analogy. When we digitized printed documents, the paper disappeared. We don't use it any more. We still have the documents, but they're completely digital. If we digitize money, the same things happens-it makes the bills and coins go away.

One more analogy: we digitized music and the records and tapes went away. We still have the music. But now, we need digital music players to listen to it. The same is true of digital money. When you digitize money, the coins and bills go away but you need a digital device to store your money on. For most people, that will be their computers, their tablets (like an iPad), or their phones. All you need is digital wallet software, which we at Cognisaya are creating.

So when you go to a credit clearing system, you're using digital money (credits) that you store in your digital wallet software on your computer or your portable device. Credits can only be spent between members. They have no value outside the system so they are not considered a currency, they're just IOUs. IOUs are perfectly legal. In fact, if you outlawed them, it would outlaw all checks, which is clearly impossible in our economy.

Like physical cash, credits are completely private. They do not identify the person who spends them. Take a look at a dollar bill in your wallet. You don't know the names of anyone who had that dollar bill before you did. After you spend it, no one will know that you had that dollar bill. Credits work exactly this way. It is impossible for the system to track what you buy. Even though you are spending IOUs, the IOUs are certified by your co-op. So your identity is not needed or tracked by the system when you make a purchase. All the system knows is how much you spend. It must know this so it can cancel your credits when you redeem them.

Also, the system doesn’t keep track of your individual purchases. It only knows the total balance of your unredeemed credits, which is your unpaid balance. So it can’t be used as a source of information about purchases you’ve made.

The only other piece of information the system tracks is your credit limit. It tracks this so that it knows when you can’t issue any more credits. You have to redeem some credits before you can start spending again.

The credits a buyer issues contain the buyer’s reputation score (but not identity), which is assigned by the buyer’s co-op. So when the buyer attempts to pay, the seller can decide whether or not to complete the transaction. In addition, the credits contain the reputation score of the co-op. So although the buyer can remain anonymous, the seller always knows the reputation of the person he or she is dealing with as well as the reputation of the buyer's co-op.


Our software stamps both the individual and co-op reputation scores with special cryptographic codes that make them impossible to tamper with.

The experience of using credits is specifically designed to seem like you're using a currency, however there is no money there-just IOUs. Because it seems like everyone is issuing currency in the system, it’s actually possible that a co-op or its network can name their credits as if it were a currency. That is, they can call their credits OurBucks (or whatever) and actually trademark the name. However, this does not imply that anyone in the system is issuing a currency. They are not.

HELP! I Lost My Money!

As with physical cash, ownership of credits is possession. In other words, if you lose your credits they’re lost. It’s just like losing your wallet full of cash. Fortunately, however, there is a way to recover your money if your device containing your credits gets lost or stolen, or if the device becomes nonfunctional. Cognisaya, LLC provides digital safe software that backs up your credits. You can run your digital safe on your home PC. But if you want to be able to access your digital safe from anywhere in the world, for a small fee you can have your digital safe hosted in our data centers.

If you have a digital safe, your wallet periodically backs itself up automatically. Therefore, you have a backup copy of all of your credits on all of your devices. Suppose your phone gets stolen while you are on vacation. You hurry to the nearest computer and go to your online digital safe hosted by Cognisaya, LLC. Using your digital safe, you invalidate all of the credits on the phone. At the same time, the safe validates the backup copy. As a result, no one can spend the credits on the phone; they are invalid. The backup copy has taken their place. At any one time, there is only one valid copy of any credit in the system.

Why Should I Join a Credit Clearing Co-op?

So at this point you’re probably wondering why you would bother joining a credit clearing co-op when you can just use US dollars. Here are a few reasons why.

Decentralized Economies

The both US government and our centralized banking system are the sources of most problems that occur in our economy. They cause inflation, push people toward poverty no matter how well they manage their money, create inequity, and centralize control over all aspects of human life. Credit clearing co-ops and networks of affiliated co-ops enable you to create entire economies that are not under the central control of bankers and the government. They enable you to participate in a rebirth of the free market. They democratize the economy by spreading control out to all who participate in it.

Freedom from Inflation

Credits come into existence when a member issues them. They are redeemed when the member sells goods or services to other co-op members. As a result, there is never any inflation or deflation. The number of credits in use can never be larger or smaller than the total value of the goods and services in the system.

The fact that credits in circulation exactly matches the goods and services available means that credits are a more robust form of exchange than any type of money currently in use. For instance, fiat currency, issued by a national government, is always subject to the vicissitudes of politics. Therefore, it’s nearly impossible for the supply of fiat currency to match the market demand for it. An example of this is the US dollar. Over the 100 years that the Federal Reserve Bank has been managing the dollar, it has lost 98% of its value. Fiat currencies such as the dollar are always this way.

Here’s a quick question: If you had $200,000 in your bank account in 1990, how much money would you need in 2013 dollars to have the same buying power?

Answer: $334,000. Yes, you would need to save $134,000 from 1990 to 2013 in order to have the same buying power as you did in 1990. How many Americans save that much money that fast? Well, unfortunately not very many. As a result, the majority of Americans are getting poorer as they approach retirement because their money is worth less.

Credits never inflate or deflate. The system requires that each credit must keep the same value no matter how much time goes by. If you join a credit clearing co-op in 2015, the credits the system uses in 2025 and 2035 will have exactly the same value as the credits did the day you joined.

What about the gold standard? Doesn’t that solve inflation? Couldn’t we all just go back to that to be free from inflation?

If you compare credits to a commodity-backed currency, such as a currency backed by gold or silver, you find that the value of the money fluctuates with the value of the commodity. However, the commodity’s value is unreflective of what the market as a whole is doing. Also, your supply of money is directly dictated by the supply of the commodity. If the commodity suddenly becomes more scarce or more common, your ability to print money suddenly decreases or increases. But again, that is unreflective of the needs of the market. It is perfectly possible for a country on a gold standard to have a shortage of gold and therefore not be able to print more money. At the same time, the market may be demanding more money because it is growing due to a population boom.

The supply of credits always matches the size of the market in which it is used. That is because credits only come into existence when someone buys good or services. And they are only redeemed when the buyer puts goods or services of equal value back into the market.

The Death of the Dollar

Here’s a pop quiz.

The dollar lost 98% of its buying power during the 100 years that it has been managed by the Federal Reserve Bank. How long will it take to lose the remaining 2% of it’s value?

A) Less than 100 years.

B) Less than 50 years.

C) Less than 25 years.

D) I don’t have to worry about this. The government will fix it for me.

If you answered A, B, or C, then you need to consider joining a credit clearing co-op. If you answered D, well you can be done reading this article. And good luck on your financial future. We sincerely hope it all works out well for you.

Even if the dollar completely collapses, a system of affiliated credit clearing co-ops can continue to operate and do business. The collapse of the dollar will definitely affect those participating in a credit clearing economy. However, members will still have value in the system that they can draw on to continue doing business. It’s a given that the collapse of the dollar will hurt. But that doesn’t mean that we have to fall into chaos is we prepare now.

New Investment Opportunities

The software that Cognisaya is producing enables your credit clearing co-op system to define financial instruments that are not based on the collection of interest. In previous entries in this series, we explained why interest means the eventual death of any economy that uses it. Being able to define your own financial instruments to replace such common things as mortgages and other financial vehicles enables you to create new investment opportunities that you do not have now.

We’ll be discussing new investment opportunities in detail in future articles in our Rethinking Money series. For now, the point is that you don’t have to settle for the kinds of investment vehicles that are currently available. Our system allows you to innovate and create new opportunities for yourself through the co-op system.

A Fairer and More Humane Economy

Another reason to join a credit clearing co-op is that you can create a more humane economy. Right now, the kind of money we use and our banking system both generate increasing poverty. Over time, these two factors combine to create greater and greater income inequality. They also force more and more people into bankruptcy.

With credit clearing co-ops, you and the people you trust can build a fairer economy that offers better chances for prosperity to those who can produce value. You do this by creating custom investment vehicles, as discussed previously. Instead of crushing loans, you can create other methods of financing home purchases, business expansions, and so forth. The methods that you create can be both profitable for you and your co-op and much more humane that the banking system offers right now.

As stated previously, we’ll present more information on investment opportunities and we’ll show how they can be used to create greater fairness in your economy.

You Own Your Economy, So You Decide the Rules

You are an owner of your co-op. As such, you have a vote in all of its policies. Your co-op network provides financial services, offers investment opportunities, and audits your co-op to ensure that your co-op is using fair business practices. Other than that, it does not impose any rules to speak of upon your co-op.

So you get to decide what happens to the stock members own when they divorce or die. Most co-ops will probably follow existing procedures that are normally used for stocks and other assets. But if your co-op wants to add special provisions, it can.

You get to decide whether or not your members must be local or if they can keep their membership when they move away. Some co-ops may ask the members to sell back their stock when the members move out of the local area. Others won’t care. Some co-ops may change a member’s status to a non-voting membership if they live outside the local area. Whatever seems right to you, you can do. That’s what freedom of choice is all about.

You decide whether or not you’ll allow children to inherit their parents’ memberships and credits. And if you don’t like the rules that a particular co-op has on this subject, you can just join a co-op whose policies you like. Or you can start your own.

Co-op members can pool their savings and invest together. What investments should your co-op offer its members? You decide. Your vote counts as much as anybody’s.

Which affiliation network should your co-op join? Here again, your vote counts.

Again, this system is about freedom, and freedom means that you get to decide how your local microeconomy works.

Credit Clearing Co-op Networks

No one co-op can provide all of the things that its members want to buy. So co-ops can form affiliation networks to meet their needs. If your co-op is in a network, you can buy from members of other co-ops just as if you were a member of their co-op.

All affiliates follow the same standards and rules of business. But these rules are the minimum required by both the law and fair business practices. Networks impose very few rules upon their members.

Affiliation networks audit their member co-ops on a regular basis. If their business practices follow the rules of the network, the network assigns the co-op a high reputation score. If not, the network may lower the co-op's reputation score.

Because networks are self-policing, no government intervention is needed anywhere in the system. If your co-op finds that the network they've joined is sloppy in enforcing good business practices among its members, then your entire co-op can go join another network. Once again, you have the freedom to leave an economy that you don’t think is fair.

Co-op networks also provide investment services and banking services that your local co-op can’t. For instance, your network may make a deal with a nationwide bank to offer mixed credit and dollar services. As an example, suppose you go into a store owned by a member of your co-op’s network. The store owner may or may not be in your particular co-op. But it doesn’t matter. If the owner is in a co-op in your network, you can use your credits to pay for items in the store.

But the store owner must pay taxes on purchases even if they’re in credits. So the store owner probably wants you to pay partially with credits and partially with dollars. Your network can cut a deal with a bank to enable that to happen. Your bank can provide you with a credit or debit card (or both) that lets you spend both dollars and credits with the same card. So if the store owner wants you to pay with 60% credits and 40% US dollars, it won’t matter. You swipe your card to pay just like you do now and the system will pay with 60% credits and 40% US dollars. For you, it’s as easy as what you do right now. But this is only possible on the larger scale offered by a network. Individual co-ops usually aren’t big enough to get this kind of a service from a bank.

So in short, your co-op network offers you access to a much larger economy without sacrificing local control. It gives you investment opportunities that a single co-op can’t offer. It can also integrate the credit economy with the dollar economy by giving you integrated banking services.

Pay Your Taxes!

One final word: Pay your taxes! Income in the co-op system is legally seen as barter income even though you are not really bartering. That doesn't matter to the IRS. They want you to file a 1099B form annually to report all of the income you earn through the co-op system. Do yourself and everyone else in the co-op system a favor; file the form and pay.


Credit clearing enables you to:

✦    Form your own economy that is not under central government control.

✦    Operate your economy according to the principles of the free market.

✦    Create an economic democracy.

✦    Buy and sell with certified IOUs rather than cash.

✦    Invest in ways that you never could before.

✦    Insulate yourself from rises and falls in the dollar.

Because investing through the co-op system is such an important topic, we'll be delving into it in more detail in part 6 of this series. We'll give an example of an innovative financial instrument that enables you to buy a house just as if you had a mortgage, but you never pay any interest at all. Even so, this new way of home buying is very profitable for a co-op's investment groups.

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