crcl:credit_clearing

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crcl:credit_clearing [2025/12/05 10:07] – created - external edit 127.0.0.1crcl:credit_clearing [2026/04/20 19:42] (current) – external edit 127.0.0.1
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-# Credit clearing+This topic is part of [[gt:economy|Economy & finance]]. 
 +====== Credit clearing ======
  
  
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-## What is credit clearing?+===== What is credit clearing? =====
  
 Here’s a simple example. A owes B £10; B owes C £10; and C owes A £10. None of them has to obtain £10 to pay their debt. They can just cancel out, or ‘clear’ it. But it needs some sharing of information. In this case, A will only know that they owe B £10 and that C owes them £10. They’d all need to share information to discover that there’s a debt loop that can be cleared. Here’s a simple example. A owes B £10; B owes C £10; and C owes A £10. None of them has to obtain £10 to pay their debt. They can just cancel out, or ‘clear’ it. But it needs some sharing of information. In this case, A will only know that they owe B £10 and that C owes them £10. They’d all need to share information to discover that there’s a debt loop that can be cleared.
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 <caption> <caption>
-In this trading loop, these 3 traders owe a total of £4300 (top), but by removing the smallest amount owed (£800) from each debt (middle), these traders now owe a total of £1900 (bottom) – reducing the amount of hard cash they need by £2400. +_In this trading loop, these 3 traders owe a total of £4300 (top), but by removing the smallest amount owed (£800) from each debt (middle), these traders now owe a total of £1900 (bottom) – reducing the amount of hard cash they need by £2400._
 </caption> </caption>
  
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 <caption> <caption>
-Banks have long cleared debts between themselves, instead of sending every single payment between different banks. +_Banks have long cleared debts between themselves, instead of sending every single payment between different banks._
 </caption> </caption>
  
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 In fact, the multilateral set-off, central clearing and mutual credit analogues described below are called ‘liquidity-saving mechanisms’ in the financial world – i.e. they don’t require money (or banks, debt, interest etc.), and so – to the extent they can be used – the quantity of circulating money just doesn’t matter. That has enormous implications – no need to compete for scarce money. In fact, the multilateral set-off, central clearing and mutual credit analogues described below are called ‘liquidity-saving mechanisms’ in the financial world – i.e. they don’t require money (or banks, debt, interest etc.), and so – to the extent they can be used – the quantity of circulating money just doesn’t matter. That has enormous implications – no need to compete for scarce money.
  
-### Types of clearing+==== Types of clearing ====
  
 **Multilateral set-off** **Multilateral set-off**
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 <caption> <caption>
-Credit clearing happened at medieval trade fairs, so that merchants didn’t have to carry around gold and silver coins to trade, which would have made them vulnerable to bandits. +_Credit clearing happened at medieval trade fairs, so that merchants didn’t have to carry around gold and silver coins to trade, which would have made them vulnerable to bandits._
 </caption> </caption>
  
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 <caption> <caption>
-A group of friends on holiday might set up an informal central clearing system to clear a lot of the debts that accumulate during the holiday, rather than having to constantly find cash. +_A group of friends on holiday might set up an informal central clearing system to clear a lot of the debts that accumulate during the holiday, rather than having to constantly find cash._
 </caption> </caption>
  
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 If a trade credit club decided not to bring accounts back to zero at certain time periods, but gave members credit and debt limits – this would be a _de facto_ [mutual credit](/mucr/mutual_credit) club, where members trade with each other without the need for money or banks. In other words, credit clearing can be a ‘gateway drug’ for mutual credit. The use of money is completely avoidable only when members are able to consume from and supply to the network in equal quantities, leaving no debt to settle. If a trade credit club decided not to bring accounts back to zero at certain time periods, but gave members credit and debt limits – this would be a _de facto_ [mutual credit](/mucr/mutual_credit) club, where members trade with each other without the need for money or banks. In other words, credit clearing can be a ‘gateway drug’ for mutual credit. The use of money is completely avoidable only when members are able to consume from and supply to the network in equal quantities, leaving no debt to settle.
  
-### History+==== History ====
  
 Money has only relatively recently permeated into most people’s lives. For merchants (for whom it would have been dangerous to travel with gold or silver coins) there was formal clearing at medieval trade fairs, and currency wouldn’t have seeped down to the community level for many ordinary people, who would use informal clearing (in their heads) with other locals. Money has only relatively recently permeated into most people’s lives. For merchants (for whom it would have been dangerous to travel with gold or silver coins) there was formal clearing at medieval trade fairs, and currency wouldn’t have seeped down to the community level for many ordinary people, who would use informal clearing (in their heads) with other locals.
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 <caption> <caption>
-John Maynard Keynes, who suggested an International Clearing Union at the UN Bretton Woods conference in 1944. +_John Maynard Keynes, who suggested an International Clearing Union at the UN Bretton Woods conference in 1944._
 </caption> </caption>
  
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-## What are the benefits of credit clearing?+===== What are the benefits of credit clearing? =====
  
-### Small businesses and communities+==== Small businesses and communities ====
  
 It reduces the amount of money (and therefore overdrafts / loans) that small businesses need; it solves a lot of cashflow / late payment problems. [Tomaž Fleischman](https://www.mdpi.com/1911-8074/13/12/295/htm)[’s research](https://www.mdpi.com/1911-8074/13/12/295/htm) (with Paolo Dini and Guiseppe Littera of [Sardex](https://www.ft.com/content/cf875d9a-5be6-11e5-a28b-50226830d644)) suggests that multilateral set-off could reduce the need for cash for small business by up to 25%; but for businesses within clusters that can use mutual credit, that figure rises to 50%! It reduces the amount of money (and therefore overdrafts / loans) that small businesses need; it solves a lot of cashflow / late payment problems. [Tomaž Fleischman](https://www.mdpi.com/1911-8074/13/12/295/htm)[’s research](https://www.mdpi.com/1911-8074/13/12/295/htm) (with Paolo Dini and Guiseppe Littera of [Sardex](https://www.ft.com/content/cf875d9a-5be6-11e5-a28b-50226830d644)) suggests that multilateral set-off could reduce the need for cash for small business by up to 25%; but for businesses within clusters that can use mutual credit, that figure rises to 50%!
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 <caption> <caption>
-Small businesses are falling into a debt / cashflow crisis that clearing can help get them out of. +_Small businesses are falling into a debt / cashflow crisis that clearing can help get them out of._
 </caption> </caption>
  
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 <caption> <caption>
-In _[the End of Finance](/crcl/credit_clearing)_, Amato and Fantacci argue the benefits of an economy based on clearing, rather than the constant scramble to try to accumulate scarce money. +_In _[the End of Finance](/crcl/credit_clearing)_, Amato and Fantacci argue the benefits of an economy based on clearing, rather than the constant scramble to try to accumulate scarce money._
 </caption> </caption>
  
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 Implemented via appropriate, mutually-governed platforms, it provides useful tools for ordinary (non-techie) people in ordinary communities so that they can get what they need and save money without requiring altruism – the holy grail for the growth of a new economy. Implemented via appropriate, mutually-governed platforms, it provides useful tools for ordinary (non-techie) people in ordinary communities so that they can get what they need and save money without requiring altruism – the holy grail for the growth of a new economy.
  
-### Sustainability+==== Sustainability ====
  
 A clearing system doesn’t rely on endless GDP growth. With the current liquidity-based money system (i.e. based on money rather than clearing), every time there’s a crisis, the only response, rather than change the system, is to attempt to stabilise it through expansion – to create more financial assets, by promising to turn more of the natural world and human society into money; in short, to financialise everything and create the conditions for a yet larger crisis. Bank-issued money is directed to companies that are best at doing that,  whereas removing bank-issued debt-money from the economy means that fewer people need to engage in economic activity just to earn the money to pay interest on debts, which is itself a key driver of exponential growth. A clearing system doesn’t rely on endless GDP growth. With the current liquidity-based money system (i.e. based on money rather than clearing), every time there’s a crisis, the only response, rather than change the system, is to attempt to stabilise it through expansion – to create more financial assets, by promising to turn more of the natural world and human society into money; in short, to financialise everything and create the conditions for a yet larger crisis. Bank-issued money is directed to companies that are best at doing that,  whereas removing bank-issued debt-money from the economy means that fewer people need to engage in economic activity just to earn the money to pay interest on debts, which is itself a key driver of exponential growth.
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 <caption> <caption>
-An economy based on clearing would insulate local economies from wider financial downturns. +_An economy based on clearing would insulate local economies from wider financial downturns._
 </caption> </caption>
  
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 </WRAP> </WRAP>
  
-### System change+==== System change ====
  
 In _[The End of Finance](/crcl/credit_clearing),_ Amato and Fantacci explain how transformative an economy based on clearing could be. In our current paradigm (which they call the liquidity paradigm), if there’s not enough money in circulation (e.g. during a credit crunch), the economy grinds to a halt. This scarcity of money stimulates people to struggle to accumulate it, leading to the enormous concentrations of wealth that corrupt democracy. It also gives the banks and the state enormous power, as issuers of liquidity – they decide who gets funded and what gets done (i.e. if it’s not in the interests of the banks and the state, it doesn’t get money). In _[The End of Finance](/crcl/credit_clearing),_ Amato and Fantacci explain how transformative an economy based on clearing could be. In our current paradigm (which they call the liquidity paradigm), if there’s not enough money in circulation (e.g. during a credit crunch), the economy grinds to a halt. This scarcity of money stimulates people to struggle to accumulate it, leading to the enormous concentrations of wealth that corrupt democracy. It also gives the banks and the state enormous power, as issuers of liquidity – they decide who gets funded and what gets done (i.e. if it’s not in the interests of the banks and the state, it doesn’t get money).
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 <caption> <caption>
-Promotional video for Local Loop Merseyside, a city-wide clearing scheme in Liverpool. +_Promotional video for Local Loop Merseyside, a city-wide clearing scheme in Liverpool._
 </caption> </caption>
  
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-## What can I do?+===== What can I do? =====
  
 Our partners [Mutual Credit Services](https://www.mutualcredit.services/) are working to help set up clearing networks in the UK and elsewhere. They’re developing a [city-wide clearing scheme in Liverpool](https://localloop-merseyside.co.uk/). Our partners [Mutual Credit Services](https://www.mutualcredit.services/) are working to help set up clearing networks in the UK and elsewhere. They’re developing a [city-wide clearing scheme in Liverpool](https://localloop-merseyside.co.uk/).
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 <caption> <caption>
-Within a multilateral set-off network, the algorithm might find small clusters of businesses that trade with each other regularly, that could have a shared ledger (record of transactions), with more trust, for central clearing and mutual credit. +_Within a multilateral set-off network, the algorithm might find small clusters of businesses that trade with each other regularly, that could have a shared ledger (record of transactions), with more trust, for central clearing and mutual credit._
 </caption> </caption>
  
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-## Further resources+===== Forum ===== 
 + 
 +This topic belongs to the section [[gt:economy|Economy & finance]]. You can ask questions or add information on the corresponding [Forum section](https://forum.growingthecommons.org/t/economy). 
 + 
 +===== Further resources ===== 
 + 
 +- [Mutual Credit Services](https://www.mutualcredit.services/) - helping set up credit clearing schemes 
 +- [Local Loop Merseyside](https://localloop-merseyside.co.uk/) - credit clearing in Liverpool 
 +- [Liquidity saving through obligation-clearing and mutual credit](https://www.mdpi.com/1911-8074/13/12/295) 
 +- [History of credit clearing](https://www.lowimpact.org/posts/a-brief-history-of-credit-clearing-with-hans-florian-hoyer/) 
 + 
 + 
 + 
 + 
 +===== Related topics =====
  
 +- [Credit commons](crco:credit_commons)
 +- [ROSCAs - rotating savings & credit associations](rosc:roscas)
 +- [Collaborative finance](cofi:collaborative_finance)
 +- [Mutual credit](mucr:mutual_credit)
 +- [Use-credit obligations](ucos:use-credit_obligations)
 +- [Commons economy](coec:commons_economy)
  
  
-## Specialist(s)+===== Specialist curators of this topic =====
  
  
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