A recent message to the Social Money listserve, prompted me to offer the following response. It addresses some crucial questions relating to the issuance of complementary currecnies or the allocation of credit within a credit clearing network.
Organizational issues and Design issues are distinct areas of concern.
The following points relate to design issues.
A currency is a device for mediating RECIPROCAL EXCHANGE — ultimately providing value for value, goods and services for other goods and service.
Regardless of how it is manifested — notes, tokens, or ledger balances — THE ESSENCE OF A CURRENCY IS CREDIT (except for full bodied coin thatcarries value in itself).
How it is issued, on what basis, and by whom is the key to success or failure.
Reciprocity must be assured. Failure of a currency is a reflectionof failure to reciprocate.
A currency is not issued until a buyer offers it in payment and a seller naccepts it in return for real value. Merely distributing notes to potential participants does not constitute issuance, but only distribution. Notes are not issued until they are first spent into circulation. When accepted in payment, there is an agreement to reciprocate. That agreement may be either explicit or implied, preferably explicit and precise.
The buyer agrees to accept the currency back later on when he/she becomes a seller. Of course currency/credit must be allocated according to the capacity of each participant/issuer to redeem it (by accepting it back in payment for goods and services).
The basis of issue then, is the goods or services in the market and ready to be sold.
Actual issuance limits should be based on the recent sales history of each issuer. The rule of thumb, based on past experience in money and banking, argues that credit lines or issuance limits should not exceed one quarter of annual sales into the network or trading community. The issuer must also agree to receive the currency in payment at par (face value).
Further, surety of contract can be provided by the pledge of some valuable collateral assets. The WIR bank has long followed this practice by asking issuing members to provide a second mortgage on real property. But the valueof that property should not determine the amount of issuing power, only provide assurance that the issuer will reciprocate and fulfill his contract.
The purpose of every CC is (or should be) to empower people to monetize the value that they themselves create, to exchange value according to their own values and objectives, and to reduce their dependence upon the exploitative political money system.
These fundamental concepts of money that need to be understood in order to design and implement effective CC systems are very well elucidated by E. C.Riegel, and are interpreted and expounded in my various power point slide shows at www.Reinventingmoney.com.
Riegel – http://www.reinventingmoney.com/riegel.php
Flight From Inflation –http://www.reinventingmoney.com/NAF/ffiExplanation.php
WIR – http://www.reinventingmoney.com/wir.php