Tag Archives: credit clearing

The Financial Times discovers mutual credit clearing

Journalist Edward Posnett, in an article that appears this weekend in the Financial Times magazine, describes the origins and operations of Sardex, a mutual credit clearing exchange that I visited last month and reported on here.

Posnett’s article, The Sardex factor, is fairly well written and begins with the subtitle: When the financial crisis hit Sardinia, a group of local friends decided that the best way to help the island was to set up a currency from scratch. You can read the full article here.

While I consider Sardex to be among “the best of the breed” and a trade exchange model worth replicating, it is by no means unique. Posnett’s article is well worth reading but I fault it on two counts, first for ignoring the scores of similar commercial trade exchanges that have been operating successfully around the world for the past several decades, and secondly for failing to emphasize the crucial importance of the value proposition that mutual credit clearing provides—the provision of liquidity to a local or domestic economy, independent of the banking system and without the disruptive and destabilizing imposition of interest.

There are several well run commercial trade exchanges but as I said in my interview at Sardex, most trade exchange operators are too complacent and satisfied with their modest levels of business success.

The ‘special sauce” that seems to make Sardex stand out is the underlying values and social mission of the founders. Their primary purpose in launching their credit clearing exchange was to help improve the local economy of their home island. I hope that will continue to inspire their operations and development in the years to come.

They have tried to assist entrepreneurs in six or seven other regions of Italy to replicate their design and operations, but told me that the results have been disappointing. I’m speculating that it may be for lack of that “special sauce.” If that’s the case, then successful replication will require that they work selectively with social entrepreneurs who share the same values and mission of serving the common good.

That seems to be quite a rare breed right now, so these people will need to be nurtured through a process of selection and education–perhaps somewhat akin to what the Jesuits have historically done. The need is for people who have the right values, strong motivation, and technical competencies to create the new socio-economic paradigm.

The interview that I gave at the Sardex offices during my visit focuses on The Changing Picture in Complementary Currencies and can be viewed in the post below or on YouTube at https://youtu.be/epOebHTQpDI. The pictures that I took are in my online photo gallery at, https://picasaweb.google.com/112258124863172998784/201508SardiniaItaly?authuser=0&authkey=Gv1sRgCILAwtjOyOetvAE&feat=directlink.

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Sardex, an emerging model for credit clearing exchanges?

Last week I had occasion to visit the Italian island of Sardinia and spend a few hours meeting with the founders and managers of a commercial trade exchange called Sardex. Here below is an abbreviated report of what I learned. The pdf version of the report can be found here.

Sardex, a brief report
by Thomas H. Greco, Jr. August 15, 2015
I recently spent a few days on the Italian island of Sardinia conferring with the founders and administrators of Sardex (http://www.sardex.net/), a commercial credit clearing exchange that has been notable for its success in organizing small businesses and service providers on this island of about 1.6 million people.

I’ve known about Sardex since almost its beginning five years ago and have corresponded over the past few years with Giuseppe Littera, one of its founders, but this was the first opportunity I’ve had to get an inside look at their operation. I came away with a pretty good understanding of how they operate and the impression that the Sardex structures, procedures, and protocols come closer to optimal than any other trade exchange I’ve seen. It appears to be a developing model that is both scalable and replicable.

I will not attempt to provide here a comprehensive report or detailed analysis, rather I will highlight a few major points and provide some sources of additional information for those who are interested in doing their own research.

Some highlights:
Current membership: ~3,000
Current transaction turnover: ~1.5 million euro equivalent per month
Expected turnover for 2015: 50 million
Velocity of credit circulation: 12 times per year
Employees included as sub-accounts: 1,000

When I asked about the key factors that account for their success, here is some of what I was told:

1. Founders are dedicated to the mission to relocalize and rehumanize the economy and to reconnect people by enabling the creation of interest-free local liquidity based on the production capacity of local businesses.

2. Social solidarity and cultural cohesion, while very important and part of the mission, were NOT a pre-existing factor that would account for their early success. In fact, they have had to work hard to develop social solidarity and cooperation amongst their members, but this is now changing. One account broker told me, “I can see how behavior of many of our members has changed. When the financial crisis first began, they were starting to lay off employees or cut their wages, and they were reluctant to spend their euros. This made matters worse as the circulation of money slowed down. But as they began to participate in the process of earning and spending trade credits, they began to increase pay to their workers and to invest in their education. In one case, when a member’s shop was burglarized, other members stepped up to help by donating some of their trade credits to help their fellow member recover from the loss.”

That anecdote demonstrates the differences in behavior that results when people experience scarcity compared to when they experience abundance. In this case, the scarcity of euros caused behavior to change in the direction of reduced willingness to spend and the contraction of overall economic activity. But their experience with trade credit was much different. Realizing the greater availability of trade credits, and finding it easier to earn them, leads people to experience abundance and to be more generous and spend more liberally.

3. I was surprised to learn that the Sardex revenue model relies mainly upon initiation fees and annual membership fees (collected in euros); and that they had decided early-on to stop charging fees on transactions. For me, that approach is counter intuitive in that I have long held the view that recruitment would be most successful if membership were made easy, low cost, and risk free, and that it seems reasonable to apply the principle that users pay in proportion to the amount of services they receive. In this case, that principal would mean that those that receive more credit clearing services should pay more. Well, this may be a case where successful practice trumps rational theory. Marketing specialists should look closely at the dimensions of this phenomenon.

There is however some logic in this approach in that, since the cost of participation is relatively fixed, members should seek to maximize the benefits of their membership by trading more within the network. Initiation fees are set according to the size of the business and range from 150 to 1,000 euros. Annual membership fees are likewise based mainly on turnover and range from 350 to 2,500 euros.

4. Strong member support by an effective staff of brokers who help to arrange trades, especially for those that have high earning capacity to avoid excessive accumulation and high positive trade credit balances.

5. Recruitment strategy tries to replicate the supply chain, i.e., bring in businesses that are the suppliers of existing members or prospective members.

6. “Solidarity threshold.” Requirement that members offer their goods and services for trade credit at the same prices as their euro prices, and that payment be accepted 100% in trade credit on all transactions of less than 1,000 euros. “Blended trades,” i.e., payment in a combination of trade credits and euros are allowed on larger purchases, according to a sliding scale).

7. (a) Restrict membership to companies that have a registered office in Sardinia. This promotes social solidarity and excludes large multi-national corporations. (b) Avoid “saturation” (accepting too many members that offer the same line of products or services).
[While I am fully supportive of the former of these, and would indeed, permanently exclude multi-national companies, this latter practice of avoiding saturation I consider to be of use only in the initial stage of establishing credit clearing as a credible means of exchange and an effective source of local liquidity. Ultimately, I believe that membership must be open to any community-based small or medium enterprise (SME) that meets the basic qualifications for membership. Of course, not all of them will qualify for lines of credit.]

8. Fully compliant with reporting and tax regulations. Transparency is a matter of fundamental importance.

9. Emphasis on monetizing the unused capacity of members. Connecting unused supplies with unmet needs is a primary benefit of credit clearing services.

The Sardex company has been consulting with other groups to replicate their system in seven other regions around Italy. In the future, Sardex is planning to initiate a rebate program to bring consumers into the trading community, which will enhance the circulation of local trade credits, make Sardex better known, and stimulate more sales for their business members.

Here below is a list of a few of the many reports and sources of information about Sardex. Readers are invited to add others as comments.

From an idea to a scalable working model: merging economic benefits with social values in Sardex, by Giuseppe Littera, et al, at the London School of Economic, Inaugural WINIR Conference, 11-14 September 2014, Greenwich, London, UK. http://eprints.lse.ac.uk/59406/1/__lse.ac.uk_storage_LIBRARY_Secondary_libfile_shared_repository_Content_Dini%2C%20P_From%20idea%20to%20scalable%20model_Dini_From%20idea%20to%20scalable%20model_2014.pdf
You can get a pretty good picture of the distinctive features of Sardex by viewing Giuseppe Littera’s presentation that was made (in English) at a conference in Volos, Greece, in 2014. It is to be found on YouTube at, https://youtu.be/rvaL2A8juz0
Report (in Italian) in the Italian daily newspaper, La Repubblica: Dalla Sardegna al resto d’Italia. Sardex inventa la moneta complementare. “Abbiamo ripensato l’economia.” http://www.repubblica.it/next/2014/06/23/news/dalla_sardegna_al_resto_d_italia_sardex_inventa_la_moneta_complementare_abbiamo_ripensato_l_economia-89771112/?refresh_ce. [English translation needed.]

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Beyond Money—Learning the basics of value exchange

We need to get beyond the confusions and obfuscations that surround the concept of money.

To do that we need to distinguish between what money is, i.e., its essence, and what money does, i.e., its functions. Conventional definitions of money, the ones that are universally taught in schools and universities, tell what money is supposed to do, not what it is.

The essence of money is credit. It is the issuer’s i.o.u. or promise to reciprocate, i.e. to provide real value to the market and accept his currency back as payment for it.

With that in mind, we can begin to make sense of money and effectively address the problems that arise from conventional forms of money.

Conventional thinking lists money as having these functions:

  • Medium of exchange—what we use to pay one another.
  • Store of value—what we use to save our temporary surplus.
  • Measure of value—what we use to quantify the market value of all the things that we buy and sell.

But, as I have argued for almost 30 years, these are separate and distinct functions that need to handled by distinct and different means. (For more about that see my book, Money and Debt: A Solution to the Global Crisis, Part III).

Let’s focus on the exchange function, for this is the fundamental and proper role of money, and this is where attempts to solve our global financial and economic problems must begin. Anyone who has studied my work will know that I have thoroughly articulated these concepts in my books and my various presentations. But theory and practice develop together, each informing the other, and finding ways to improve the process requires that we look at both.

Over the past several decades, numerous innovations in the exchange function have emerged, including virtual commodities like Bitcoin, LETS systems, community currencies, and commercial trade (“barter”) exchanges.

Of these, the greatest market success has been achieved by commercial trade exchanges which enable their member businesses to buy and sell without using conventional money. Rather, trading is enabled by using the members’ own credit in a process called credit clearing which simply offsets debits from purchases against credits from sales. (For a more complete description of how this works, see my book, The End of Money and the Future of Civilization, especially Chapter 10).

Over the past 40 years, much has been learned from the operation of commercial trade exchanges, and while they have achieved some modest levels of success, they have barely scratched the surface of the potential market for credit clearing services. It remains for exchanges system designs and procedures to be optimized and standardized and for local exchanges to be networked together into a vast moneyless marketplace.

The trade exchange industry has two trade associations that have been instrumental in helping practitioners to share information and in promoting standards and best practices. These are the International Reciprocal Trade Association (IRTA) and the National Association of Trade Exchanges (NATE). But over the past year a new voice, Bartertown Radio, has emerged that seeks to disseminate the knowledge and wisdom of practitioners to a wider audience. Its mission is to provide an “Educational Program for Business Owners, Entrepreneurs, Barter Exchanges, Owners or New Owners of Barter Exchanges or anyone interested in Alternative Economies.”

Broadcasts are archived and can be accessed on demand at the Bartertown Radio website. Particularly relevant is the April 18 broadcast featuring Richard Logie, a man with 20 years of experience as a trade exchange operator and software platform developer. During that interview, Richard shared his experience and knowledge about a wide range of topics including the factors he considers in allocating credit lines to exchange members, how tax issues are dealt with, and ongoing efforts to establish and enforce good standards of operation. That interview with Richard will be continued next Saturday, April 25 at 11 AM Eastern time (UTC-5). Be sure to tune in at http://www.blogtalkradio.com/educate4barter/2015/04/25/richard-logie-part-2 .

Other archived broadcasts that may be of particular interest are the April 5 interview with industry leader, Harold Rice of the American Exchange Network, and the interview with yours truly from December 13, 2014. Besides operating his own trade exchange company for almost 40 years, Harold Rice has provided consulting services for entrepreneurs and other exchange operators. He is a fount of knowledge about the details of exchange operation and has special expertise in accounting and tax issues.

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Thomas H. Greco interviewed on Bartertown Radio

My December 13 interview by Bob Prentice and Sandra Harshman on Bartertown Radio considered moneyless trading in general then zeroed in on what needs to be done to take credit clearing and private currencies to scale. To stream it or download it, click here.

Community currency thriving in Kenya’s slums

In the slums of Kenya, money is especially scarce. Still, the residents are productive and have plenty of goods and services to offer one another. American social entrepreneur Will Ruddick, together with hundreds of local enterprisers, has found a way to create supplemental exchange media that enable them to trade with one another despite the lack of Kenyan shillings.

Here’s a new video about their Bangla-Pesa currency that they have created in Bangladesh, a slum area of Mombasa.


And, here’s a recent TV news report, which is described as follows:

Published on Apr 10, 2014. When news of the complementary currency branded Bangla-pesa first broke out, claims arose that it was linked to the proscribed Mombasa Republican Council, MRC, and its secessionist agenda, almost spelling doom for the project. A year later, we returned to Bangladesh slum in Mombasa county where the vouchers were first launched, and discovered that not only has the program grown in leaps and bounds, but plans were afoot to roll it out in different slum in the region.


Money, debt and the end of the growth imperative

My latest article, Money, debt and the end of the growth imperative, was published today (March 3) in the online journal, Transformation. Read it here. –t.h.g.

How does mutual credit clearing enable moneyless exchange?

Here’s and excellent, short and sweet description of how mutual credit clearing works to provide interest-free liquidity. From Bartercard New Zealand…