Rethinking Money Part 5: Credit Clearing Cooperatives - How Do They Work?

How does a world without money work?

Credit clearing cooperatives and networks of affiliated cooperatives provide you and I with a way to create custom free market economies in which we each have an equal voice.  But how do they work? What is it like to buy and sell with credits? And what about investments?

Co-ops are Businesses

Credit clearing cooperatives are usually for-profit corporations. They don’t have to be; they can be nonprofits if you want. But either way, they should not be run on volunteer labor. Credit clearing co-ops run by volunteers have been tried in the past. Experience shows that after an initial burst of enthusiasm, they die out or decline rapidly. Therefore, the co-op should be run as a business (or nonprofit) with a paid staff.

In general, co-ops should have at least 200 members but not more than 5,000. Fewer members than 200 results in the co-op having an economy that is not diverse enough. Also, the co-op must make in income and having too few members usually means it can't make enough money.

Having more than 5,000 members in a co-op dilutes the vote of individual members and makes them feel disconnected from their economy. They will not want to participate much.

Anyone who joins a co-op does so by buying stock. This makes the member an owner. As an owner, every member has a vote in the co-op’s policies. This provides members with greater control over their own microeconomy. It also decentralizes economic control away from national governments. In a true democracy (or democratic republic like the US and many other countries), everyone should have a say in how their economy works. It should not be centrally planned or controlled at all.

Also, everyone should have a chance to compete in an open, fair marketplace. The the current system not only favors Big Money and Big Government, it actively promotes their interests above the interests of the rest of us. In the co-op system, everyone competes according to the principles of the free market. And if you don't like how your co-op is operating, you can go join another one or start one of your own and compete just like everyone else.

Joining a Co-op

To join a co-op, you must first find a co-op with people that you trust and rules that you like. If you can’t find such a co-op, you can start one yourself.

When you join, you pay an entry fee. This fee buys you stock in the co-op, giving you the privileges of ownership.

You also undergo a background and credit check. Co-ops must ensure that their members are reliable. Of course, it’s possible for normally reliable people to have personal problems and go bankrupt. In that case, the co-op can provide itself with various types of insurance to handle the situation. It can also provide remediation plans for recovering from life’s difficulties. But everyone in the co-op system must be reliable under normal circumstances. One bad member can ruin the reputation of the whole co-op, so you need to screen your members carefully. In fact, you need to screen them as well as banks and credit unions do when they give out loans.

Issuing Credits

To issue credits, your co-op must have a computer that runs the Transaction Validation Server (TVS ) software from Cognisaya, LLC. When you join, you get an account on your co-op’s TVS and that account contains the digital equivalent of gold bullion. It’s important to note that there is no real gold. This “d-gold” (short for digital gold) is not a negotiable financial instrument. Simply put, you can’t spend it. The only thing you can do with it is issue credits against it. You spend the credits, not the d-gold.

The main reason you have d-gold is to indicate your credit limit. If you have $20,000 worth of d-gold, you can issue $20,000 worth of credits. The system also uses the d-gold to keep track of whether or not you have redeemed your credits. It’s essentially a token or a marker, kind of like a poker chip.

The system uses your d-gold “marker” to protect your privacy. For instance, when you buy something from a member of a different co-op in your affiliation network, your co-op gives enough of your d-gold to your affiliation network to cover the amount of the purchase. The affiliation network holds the d-gold in an escrow account. It doesn’t know who the d-gold belongs to. It only sees the d-gold as generic d-gold from your co-op. All of the d-gold from members of your co-op sits in the same escrow account on the affiliation network’s server. When you redeem your d-gold, your co-op passes some credits along to the network and the network releases the d-gold back to the co-op. The co-op then gives it back to you.

The upshot of all this is that only your co-op knows who the d-gold belongs to. The network has no record of any purchase you make. It doesn’t even know that you are spending money. And even your co-op doesn’t know what you’re buying. It doesn’t have any record of your individual purchases. It only knows your outstanding balance because it knows how much d-gold you have not redeemed yet. Other than that, it keeps no financial information about you unless you authorize it to do so. Your privacy is protected.

So you log onto the TVS and issue co-op credits (your digital IOU) against your d-gold. Essentially, the d-gold backs the credits that you issue. The amount of d-gold that you have determines the number of credits you can issue. When you run out of d-gold, you run out of credit. But when you provide goods and services to other co-op members and accept their credits as payment, the system automatically redeems your d-gold so that you can issue more credits against it.

When you issue credits, you’ll notice that they are in specific denominations just as if they were money. As previously stated, credits are designed to simulate the experience of using money. But even though you see “bills” in your digital wallet of 5, 10, or 20 credits, no money exists. These are just IOUs made out in specific amounts.

After you have issued yourself some credits you can buy goods and services from other members of the co-op just as if you were using money.

To redeem your d-gold, you must sell goods and services to co-op members in exchange for credits. When you deposit them into your account, the system automatically redeems your d-gold. Leaving your d-gold unredeemed for long periods of time lowers your reputation score.

When you sell goods or services and accept credits from others, you can accumulate credits beyond what you need to redeem your d-gold. You can use the excess to increase your credit-issuing limit by buying more d-gold. This does not get you more ownership in the co-op; it just raises your credit limit.

If you accumulate still more credits from other people, then you can save, invest, and spend the additional credits.

Shopping with Credits

When you go shopping, you first put some credits in your digital wallet on your portable device. To make the shopping experience easy and straightforward, the device should have a camera. This is generally not a problem these days because even $15 pay-as-you-go phones have cameras.

At the store, start the wallet software and point the camera at the price tag, which has a 2D bar code similar to the one in the following figure.

7-28-13 Fig 1

The bar code on the price tag probably contains the price in US dollars. The reason for this is that most merchants will want to sell to both co-op members and nonmembers.

Members point their cameraphones at the 2D bar code and their digital wallet software shows them the price in credits. Just like when you’re shopping with US dollars, you then take the item to the cashier to pay. Payment is done with your wallet software.

At the cash register, the cashier rings up your purchase just like always. The cash register is just a device that runs the right software. Sellers may use their wallet software. However, they will find this inconvenient if they sell goods regularly. For that, Cognisaya, LLC provides cash resister software that runs on most mobile devices. So the cash register can be an inexpensive tablet PC that supports an external screen. Most tablet PCs support external screens.

Once the cashier totals up the purchase, the cash register posts the invoice somewhere on the Internet. If this is a store, it will most likely have its own server for that. However, the seller’s co-op may provide such servers for its members.

In any case, the cash register generates a 2D bar code containing the invoice’s URL (Internet address). It displays the bar code on the external screen, which faces the buyer. If you are the buyer, you point your cameraphone at the 2D bar code on the screen. Your wallet software automatically goes to the location specified in the 2D bar code and gets the invoice. It then displays, “Bob’s Corner Grocery: 2 Credits”.

To complete the purchase, you simply select “Accept Purchase” and your wallet software pays the cashier.

Please be aware that this scenario is the lowest common denominator. Most phones–even phones as inexpensive as $15–have Bluetooth, near field communication (NFC), or wifi built in. If your phone has any of these capabilities, the cashier can send the invoice to your phone directly. Then you don’t have to worry about using the camera at all.

Also note that it’s possible to pay with a mixture of currencies. For instance, if Bob’s Corner Grocery want’s to be paid 50% in credits and 50% in US dollars, the invoice will say so. The wallet software will pay 50% to Bob’s from the credits you have on your wallet. It can then charge your credit card in USD for the other 50%. For you, it is as easy as paying with a debit or credit card.

Selling with Credits

If you sell to other co-op members, you can use either their digital wallet software or cash register software written by Cognisaya. For now, let's assume you're an infrequent seller and you're using the wallet software.

When a buyer pays you, your digital wallet software contacts your co-op’s transaction validation server (TVS). So you must have an internet connection to do business. But that’s not an issue for most businesses these days. And because most people have phones that can connect to the internet, you can even use credits at flea markets and in other ad-hoc sales situations.

Your digital wallet contacts you co-op’s TVS. The TVS validates the buyer's credits. The TVS issues digital receipts to you and the buyer. Your receipt contains your payment. They buyer's receipt holds the buyer's change, if there is any, or just a summary of the transaction. 

Investing with Credits

When you accumulate credits, you can leave them in your wallet or you can leave them in your account on your co-op's TVS. However, if you choose either of these options you miss out on opportunities to earn more credits. That's because depositing credits in an account on your co-op’s TVS is not like putting it in the bank. You get no interest on your credits. If you want that, you need to invest your credits.


When you issue credits against your d-gold and invest the credits, your d-gold may go unredeemed for a long period of time. However, this does not lower your reputation score as it normally would. When you invest credits, the d-gold that backs them goes into a special escrow account. It can still be redeemed at any time. However, the special escrow account ensures that your reputation score does not decrease even if your d-gold is unredeemed for decades.

Investment Groups 

Co-ops form investment groups that their members can join. Members who join investment groups deposit their credits in the group’s account. The co-op then invests the credits and takes a portion for the co-op in return for running the group.

The investment groups can invest in anything the co-op thinks will make a good return. This can be anything at all that the group can buy with credits. Investments might include real estate, buying businesses, and so forth.

Co-op members can go to investment groups when they want loans. For example, a member seeking a home or business loan can apply to a co-op investment group that handles those types of investments.

Investments and Interest 

The investments that a group makes may or may not be interest bearing. For example, an investment group might buy and apartment building and have a property manager oversee it. In this case, the return would not come from interest. Rather, it would come from renting apartments out to occupants.

The detrimental effects of interest were presented in a previous blog post. Those wishing to avoid such effects are perfectly able to invent new financial instruments that are not based on interest. This will not hamper the ability of co-op members to make good profits in the free market. Wise investments that do not bear interest can enrich both the co-op and its members.

Having a good portfolio of investments can enable a co-op to do more than just handle financial transactions and investments. For example, a co-op or a group of co-ops could decide to start a private school. Of course, the tuition for nonmembers would be higher than the tuition for members. Members may find that the co-op system makes it easy to send their children to private school. Because members are the owners of the school, they have a more direct say in what is taught than is available through public schools. And if the co-op’s school proves popular, it can provide a good return on the investment.

Co-ops can take this same approach with other services. They might want to use investment groups to start a health care clinic or hospital. This enables the co-op system to provide its members with affordable health care that is directly responsible to the patients that it serves.

In addition, co-ops can use investment groups for long-term retirement planning. Smart investments that produce steady revenue streams can eliminate the need to depend on meager government-funded retirement plans. 

Roll-Your-Own Financial Instruments 

Our software also enables you to create legal contracts with programming logic built into them. Technically speaking, the TVS supports a scripting language and you can embed the scripts into the contracts themselves. The contract “lives” on the TVS until it reaches its termination conditions. At that point, the TVS stops processing the contract.

The upshot of this is that contracts can enforce their own terms and conditions. They can make deposits, withdrawals, and transfers. They can send email notifications, hold funds in escrow, and more.

In short, you can create brand new types of financial instruments and add them to the system, which will them process them as if they were built in. Using these capabilities, it is possible to completely eschew any type of financial instrument that charges interest. Charging interest always requires people to pay back loans with money that has not been created by the economic system. For the co-op system to have long-term stability, charging interest should be avoided. However, we at Cognisaya do not dictate the co-op's rules. We simply provide you with the tools to create them. The rules you operate your co-op under are yours to choose so it is up to you whether or not you will charge interest.

Modern banking is built almost entirely on interest-bearing financial instruments. They are so common that they seem natural to us. In fact, even most people in the financial industry would be hard pressed to figure out new types of financial instruments that do not depend on charging interest. But the reality is, it’s all been done before.

Prior to the 1600’s, the area known as the “Christian world” equated charging interest with usury, which was strictly forbidden in the Bible. During the 1500’s and 1600’s, people redefined usury to mean charging “excessive” interest. The laws of most Western nations were built on this idea. In fact, until the last few decades, charging more than about 10% interest was seen as loan sharking and could result in jail time. These days, it’s common for credit card companies and others to charge as much as 21% interest on a loan.

To build a better future, we can look to the past to see what kind of financial instruments were used during times that prohibited interest. We'll present some of these innovative approaches in future articles.

Banks and Credit Clearing Co-ops

Because co-ops engage in functions that are bank-like in many respects, it would be natural for co-ops or co-op networks to want to start their own banks. A simple way to do this is for them to create a credit union. If they did, they could freely mix their financial activities between credits and US dollars.

Existing banks can see this as a threat or a business opportunity. A forward-thinking bank could see this as a chance to get into new markets. For example, imagine that there is a nationwide bank called the First National Bank of Elberta. First National could provide all of the banking services that a co-op or co-op network needs if they would just accommodate credits as well as dollars.

To move into this new market, First National can offer co-op networks services such as transaction processing, savings and checking accounts in credits, and investment group management.

In addition, First National could provide interface services between the credit and the dollar economies. They could enable people to pay in a mixture of dollars and credits. If they were smart, they’d offer debit cards in credits. Or if it becomes common for sellers to want partial payment in dollars, they might make to possible to pay 60% in credits and 40% in dollars when making a purchase using the same debit card.

In such an arrangement, First National would be able to offer its services both online and at branches nationwide. So members could withdraw credits at any branch nationwide. Co-op members might also be able to obtain credits via ATMs.

Also, many banks sell business-related insurance policies. Every co-op would need some form of insurance to protect itself against members who default on their debts. This is a chance for banks to get into a market that they do not currently serve.

As you can see, there are many opportunities here for banks to make money. If they simply add their services to the credit economy, they can assure themselves of new sources of revenue.


Credit clearing cooperatives are fully-functional, free market economies that enable you to buy, sell, do business, and invest without money or with a mixture of currency and IOUs. You redeem your IOUs by selling goods or services for other people’s IOUs. The result is a distributed economy that enhances local businesses and provides you with new opportunities to make a profit.

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