What is Credit Clearing?

Credit clearing cooperatives, networked into a full-fledged economy, can let you transcend money and create a stable economy.


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 or any bartering at all.

To take this example further, suppose Bob owns a grocery store where he’s been selling your eggs. To cancel his debt to Al, Al gets food from Bob’s store for his restaurant. So now you, Al, and Bob are all able to buy and sell without money.

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.


Credit Clearing Co-ops: Free Markets that You Have a Voice In

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 money at all.

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

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 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 or money-like financial instruments, the same things happens-it makes the bills and coins go away.

So when you go to a credit clearing system, you're using digital IOUs (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. 

Like physical cash, credits are completely private. They do not identify the person who spends them. 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 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.

The experience of using credits is specifically designed to seem like you're using a currency, however there is no money there-just IOUs. 


The End of Inflation

At all times the 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.

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.


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. 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 and enables everyone should have a say in how their economy works. Also, it gives everyone 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.


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. At the store, start the wallet software and point the camera at the price tag, which has a bar code that 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. Once the cashier totals up the purchase, it posts the invoice somewhere on the Internet and generates a bar code containing the invoice’s URL (Internet address). It displays the bar code on the external screen, which faces the buyer. You point your cameraphone at the bar code on the screen. Your wallet software automatically goes to the location specified in the 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.

Note that this scenario is the lowest common denominator. If your phone has Bluetooth, near field communication (NFC), or wifi built in, the cashier can send the invoice to your phone directly. Then you don’t have to worry about using the camera at all.


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 of business. Affiliation networks audit their member co-ops on a regular basis. 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 and go join another network. This is called freedom and it's what the co-op system is all about.

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