A Model Membership Agreement for a Credit Clearing Service

[This is Appendix A, excerpted from The End of Money and the Future of Civilization by Thomas H. Greco, Jr.]

Here is the pdf file: A Model Membership Agreement for a Credit Clearing Service

This is an updated post; the comments pertain to the earlier draft post.

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10 responses to “A Model Membership Agreement for a Credit Clearing Service

  1. Thank you for the explanations. I am still unclear in 5.4 as regards to the specific circumstances in which security would be required (I understand what you say about security being used only provide surety of contract, not to determine the amount of credit lines). But this question is not so important at the moment.
    “Transparency in the management of an exchange and responsible oversight by the members are also crucial.”
    It would be very helpful if you could point to details or specific guidelines in relation to transparency and oversight if they exist.

    • The “circumstances in which security would be required” is something for the members to decide.

      Members need to be given all of the important information needed to judge the health of the system and the performance of the management. You need to work that out with the members. As an example of oversight, I can envision an audit committee elected by the members to examine the books periodically and review management procedures.

  2. We are setting up a B2B Mutual Credit System in Ireland. I have a few questions please:
    3.2 In no circumstances is MCCU, or any other person, obliged under these terms to redeem VAL’s for cash. However, anyone wishing to buy or sell VAL’s for cash may do so at any rate of exchange that may be negotiated between the parties to the transaction.
    Q: Most trade exchanges or MC systems forbid trade of trade credits to/from legal tender. What is your rationale for explicitly allowing this in the membership agreement?
    2. For each account, credit lines may not exceed one quarter of annual sales into the Network, based on the most recent 12 month period (six month period for those who have been members for less than one year). Q: On what basis has 1/4 annual sales into the network specifically been chosen?
    5.4 MCCU may at its discretion require a Member to provide a guarantee, cash deposit or other security acceptable to MCCU as surety for the performance by the Member of its obligations under these Terms. Such security shall be used only to provide surety of contract, not to determine the amount of credit lines.
    Q: Why this has been included?
    7.. (d) fees associated with credit checks and assurance of lines of credit requested by the Member, at the rates applicable at the time of request. Q: Does this mean a member can request a credit check against another member?
    8.2 Blended Trades. Blended trades shall be allowed only on transactions that exceed 1,000 VAL’s according to the following schedule:
    If the amount of a single transaction is less than 1,000 VAL’s, seller must accept 100% of payment in VAL’s.
    If the amount of a single transaction is between 1,000 VAL’s and 2,000 VAL’s, the buyer may be required to make partial payment in cash, but in no case shall the cash portion exceed 30%.
    If the amount of a single transaction is between 2,000 VAL’s and 5,000 VAL’s, , the buyer may be required to make partial payment in cash, but in no case shall the cash portion exceed 50%.
    If the amount of a single transaction is greater than 5,000 VAL’s, , the buyer may be required to make partial payment in cash, but in no case shall the cash portion exceed 70%.
    Q: Most Trade Exchanges/MC Systems do not allow blended sales. I would be interested in your rationale for allowing this and for the specific figures above

    • 3.2. First of all, it’s nearly impossible to enforce a prohibition against selling credits for money. More importantly, the selling rate of credits in terms of conventional money is an indication of the real value of the trade credits. If credit allocation is improper or excessive, that causes the value of trade credits to diminish, thus some trading of credits provides an indicator of such abuse.
      The allocation of credit limited to 1/4 of annual sales (~1 % daily reflux of currency) comes from past experience in sound commercial banking. That will need to be adjusted upward or downward based on seasonality of the business, etc. My recent article addresses this subject of credit allocation.
      http://ijccr.net/2013/04/30/taking-moneyless-exchange-to-scale/

    • 5.4. The relevant principle here is that “money [or trade credit] should be issued on the basis of goods and services that are already in the market or shortly to arrive there.” So, the only thing that stands in the way of completion of the issuance-redemption circuit is the natural time lag between earning and spending, and not a deficiency of things available to be bought.
      Collateral assets are not in the market, there is no intention to sell them, they only serve to guarantee that the member will adhere to their agreement to accept trade credits as payment for their goods and services, which are in the market, and to not leave the group without first clearing their debit balance or other obligations.
      The object of a credit clearing exchange is to “monetize” the value of goods and services being offered for sale, not to “monetize” the value of assets that are not being offered for sale.

    • 7..d. No. When a member requests a line of credit, the MCCU management my require a credit report on that member from a credit rating service. They charge fees for that service.

      8.2. We would like to avoid blended trades as much as possible, but there are marketing considerations. New members may lack confidence in their ability to spend their trade credit earnings, so will want to make sure their cash costs are coverd.
      Many trade exchanges DO allow blended trades on large purchases or items that have a small margin over cash costs.
      The amounts I’ve proposed are arbitrary. Each exchange can work out what is reasonable in their particular situation.

  3. Seagmarobearo

    Content help me to create bank

  4. Michel O'Callaghan

    A forment Lets trader, I am involved in working on a community based exchange model network for Ireland

    I am interested if there have been any further developments in the evolution of this draft agreement SINCE the publication of The End of Money’

    If/when our implementation strategy is tested, I will be please to share the results.

    • I have not updated that draft. I think it adequately covers the main problems that have plagued trade exchanges over the years. Transparency in the management of an exchange and responsible oversight by the members are also crucial.

  5. Michel O'Callaghan

    A forment Lets trader, I am involved in working on a community based exchange model network for Ireland

    I am interested if there have been any further developments in the evolution of this draft agreement SINCE the publication of The End of Money’

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