Latest News in the World of Complementary Currencies
Hello! As you likely know, the HUMANs comprises individuals, organizations, and projects, and focuses on supporting the work of pilot projects around the world in a network of mutual aid. We have web meetups twice a month, to connect and support one another. This is for current and potential pilot participants, and you’re also welcome…
The post Pilot site meetups 2nd and 4th Tuesdays – join us! appeared first on Mutual Aid Networks.read more
Five-Star All-Inclusive Hard Rock Punta Cana Hotel and Casino Selected For IRTA’s 40th Anniversary Convention!
IRTA is proud to announce the Hard Rock Hotel & Casino in Punta Cana has been selected for our historic 40th Anniversary International Convention. The dates are Thursday, September 5th to Saturday, September 7th, 2019. Conde’ Nast gives the hotel its highest rating, “The Hard Rock Punta Cana’s all-inclusive hotel and casino exudes lavish five-star all-inclusive amenities and personal services …read more
As a response to the WRR report “Money and debt” a magazine for economics teachers (TEO) presented some questions to Ons Geld. Both these questions and the answers are presented below. In “Money and debt: the public task of banks”, the WRR makes various recommendations (especially to politicians) about our monetary system. For example, the […]
The post Questions and answers following the WRR report “Money and debt” appeared first on International Movement for Money Reform.read more
The usual mechanism of exchange in daily life and in cryptocurrency markets is using an intermediate commodity called money. If you want to swap the G&S you produce for other G&S you put your G&S on a bilateral market and swop it for money with whoever wants to pay the most for it. Then you take your money into another market and swap your money for the G&S that you want. Since money is a commodity like any other, you don’t have to swap G&S for G&S but can move money in and out of the exchange.
Each exchange will designate usually one (but sometimes more) commodities as money, meaning that it appears in all (or many) commodity pairs, enabling you to convert one G&S for another in only two swaps.
A decentralised exchange (DEX) is doing the same, but avoiding having to trust an institution and avoiding the laws under which institutions are governed.
A mutual credit exchange requires no money to mediate exchange, and therefore no need to procure that money before hand. You go the exchange to find counterparties, you provide your G&S and you take other G&S in either order,. Between those two transactions, one party is trusted to provide something back to (the members of) the exchange, and one party is trusted to take something from (the members of) the exchange. The exchange is of G&S for G&S. The differences are these:
|What is exchanged in one transaction?||Money for G&S||G&S for G&S|
|Simultinaety||Simultaneous swap||Delayed swap|
|Member balances||Members can have any positive balance||Members balance between limits, average zero|
|Role of institution||Mo manage financial assets||No institution||To manage trading records|
|Who is trusted for what?||The exchange is trusted to hold assets||Developers and auditors are trusted that the DEX works as advertised.||Members are trusted to complete the swap.|
|Source of liquidity||Available money||Available trust|
|Value of the ‘money’||The most stable commodity because it has, by definition, the highest liquidity||Defined by the exchange|
|Meaning of the ‘money’||Money is property, owned by somebody||Money is an agreement, governed by its users.|
|Reversibility||Requires legal intervention||All transactions are contingent on the community’s agreement and can be nullified.|
There is another key difference between the usual way of exchanging and the way needed for the solidarity economy, which concerns the value of money. In the usual exchange, money is a asset whose customary use is as a medium of exchange. As the most traded asset therefore, money should have the most stable value of all the assets being exchanged – it is the most liquid after all. But the value of the money is not stable by definition. The availability of money to a given market varies and its abundance or scarcity in that market actually interferes with the market itself, driving all prices up or down together.
In a mutual credit exchange there is no money and no quantity of money, so it is not subject to that kind of outside interference. Instead of a money there is only a unit of account, whose value can be defined in many ways, but is essentially a political question between the members wanting to exchange. The unit of account is used to measure how much each member is obliged to supply or take from the market in order to complete their exchange. In a currency exchange, the groups are unlikely to want their currencies to float against each other in a free market system. Instead they might rather agree on exchange rates, and use capital controls instead to maintain equilibrium. this leads to two more differences.
|Stability of the accounting unit||The most stable asset||Defined through a political process|
|Balance achieved by||Supply and demand||Capital controls|
There’s one more difference I want to highlight, which is how mutual credit exchanges could scale into a global system. In the global marketplace, different exchanges specialise in different G&S from the street market which trades vegetables for money, to financial markets, oil markets, mortgage markets, cryptocurrency markets etc. All of these different institutions are joined into a global system because they use the same money, which moves easily from one market to another.
In my plan for the Credit Commons there is no valuable asset backed by the taxpayer that you can simply transport from any marketplace to any other marketplace. Instead there is a structure of credit relaltionships backed by people and organsations that know each other and depend on each other for trade. Each group is self organising and self-governing and as such needs the freedom to run its preferred accounting software on its prefered hardware in its preferred legal jurisdiction. Groups themselves make trading relationships with other groups, forming groups of groups. and transactions between these groups need to be, validated by all three entities, each group and the supergroup, be stored in all three places, provably the same.
With all of these differences it makes little sense to build a mutual credit exchange on a DEX or any conventional exchange software. Ideally we would need new software of the ilk of blockchain, holo, or rickardian contracts, but its not clear to me yet, whether any of these could do it.
Compared to these technologies, a credit commons software would have to:
- connect to other instances of itself in a tree structure.
- Work with the other instances to find paths through the tree.
- Relay a transaction along the path, storing it at every node involved if and only if all nodes validate, and return an error message if not.
Looking at the available technologies I’m not sure there’s anything out there which could do that right now. Software in the commodity money paradigm can do it but only in a hacky way. Here’s how:
First of all you have to create assets (tokens) out of nothing in the central exchange, give them a face value and give some to the participating members. This represents the credit limit of each member, the maximum they can spend over what they earning. Then you need to write a script or somehow prevent members from having too high balances – a different mechanism since you can’t have negative assets. Then there aren’t free markets in money. Exchange rates are adjustable only through a process of governance. So bids and offers and matchmaking work very differently
With this understanding it seems that most exchange software is a best, over-engineered for mutual credit exchange and at worst, the wrong tool for the job. So what software is right?
In some ways it looks like a job for a blockchain,but there’s no need for one definitive ledger for all transactions. In some ways it looks like a job for holochain, with each exchange having its own instance, but I don’t think holochains can link up in that way. In some ways it looks like a case for Ricardian accounting, but I need to explore further – I need to talk to experts! It could be that a whole new technology is needed…
It’s from 2015 but just as relevant as ever, and becoming more apparent. Mutual Aid Networks are part of weaving the future today. Hear the great Michel Bauwens talk about that, and much more, in this 2015 interview, The P2P Revolution.
The post MANs as part of the P2P Revolution, according to Michel Bauwens appeared first on Mutual Aid Networks.read more
The Credit Commons is my design for a financial exchange based on the principles of mutual credit, and autonomous communities voluntarily and trustfully collaborating. As such it differs from the more common exchange architectures in fundamental ways. This post explains how and why there is a difference, and hence why mutual credit exchange is not well suited to current exchange architectures, and hence why the mutual credit exchanges in general, and the credit commons in particular, shouldn’t just be grafted onto some existing technology.
A normal exchange:
- assumes that all assets are priced purely on supply and demand. They require the highest trade volume possible (liquidity) to reduce volatility and slippage.
- is a simultaneous swop of assets at the specific moment when the minimum price of the seller overlaps with the maximum price of the buyer.
- is a trusted institution. Traders load their assets into the exchange (which is why I’m calling it a commodity money exchange); the exchange re-allocate the assets to different account as trading takes place; and then traders pull their assets out.
Another kind of exchange, which I don’t want to go into here because it only involves cryptocurrencies and seeks to further reduce the need for trust in any institution, is the decentralised exchange (DEX). in this configuration, the exchange doesn’t hold assets on behalf of traders, but matches bids and offers, and executes atomic (meaning simultaneous and entangled) transactions on both of the blockchains involved.
In contrast, no assets go through a mutual credit exchange and the exchange that happens is not simultaneous. Participants in a mutual credit exchange trust each other to complete the exchange later. The ability of participants to trust each other is a major advantage because it means it enables half the users to buy before they sell, without having to acquire assets first, and it enables prices to be more stable, because there is no intermediate commodity (money) whose value can also change.
This difference between types of exchange is exactly the same as the difference in different types of money. Is money an asset which is used as an intermediate asset to ‘make’ markets, or is it merely a standard of value to help price things? Is an exchange the swap of money for a commodity, or is the swap of a commodity for a commodity?
I’m not talking about anything esoteric. I’m sure that there must be a vocabulary in economics for these types of exchange, with and without a commodity medium of exchange. This latter type of exchange is what Keynes proposed for international trade at the Bretton Woods conference, and what many would-be reformers of the global financial architecture are still calling for. But with the growing dogma trade is a process that happens between anonymous parties purely on the basis of competition over price, commodity money and commercial commodity exchanges are becoming more prevalent, leaving no headspace for the kind of exchanges involving trust, community, self governance, and p2p credit.
It is possible to build a mutual credit exchange on a normal exchange architecture, but it is hacky. First of all you have to create assets (tokens) out of nothing in the central exchange, give them a face value and give some to the participating members. This represents the credit limit of each member, the maximum they can spend over what they earning. Then you need to write a script or somehow prevent members from having too high balances – a different mechanism since you can’t have negative assets. Traders are not interested in a ‘marketplace’ where each commodity is bought and sold for ‘money’ because there is no ‘money’ and there is no instantaneous swap of assets. Instead traders want to effectively transfer their worthless tokens to another user (or claim them from another user). Every transaction should be reversible in case or errors or disputes.
With this hacky approach I’m assured that we could use the Bancor protocol to build a mutual credit exchange. The Bancor Protocol is a simple smart contract that manages a pool of assets so as to guarantee a counterparty in markets with low liquidity. a mutual credit exchange is considerably simpler, and does not even exhibit the problems that the Bancor Protocol addresses.
We might get further by using Ripple/Stellar, although they model networks of relationships not groups and groups of groups. Consequently its very hard to model groups as objects with properties (like transaction validation rules) in that architecture.
But there’s another reason we need a dedicated system. Because mutual credit systems are for people who trust each other, you can’t meet the needs of everybody by just building one and putting it on a really big server. Instead you need to build many and link them together. Ideally each group (and group of groups) would have its own software instance and be independently hosted. In order to do one transaction across the network, many software instances could be involved, and they would need to coordinate. If the community currencies doing mutual credit were to to use exchange software build in the commodity money paradigm, this kind of separation and connectedness of groups would be extremely elaborate and hence expensive to build and maintain.
What we need is something simpler that a standard exchange. If what we need is two bicycles we won’t thank anybody for giving us a car!