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    “Pre-payment of rent was how kings of England raised money for 500 years. But nobody pre-pays, unless there’s a discount.” – Chris Cook

    What are use-credit obligations?

    A use-credit obligation (UCO) is essentially a voucher that will be accepted as payment for future supply of goods and services. They’re most useful as ways of funding commons infrastructure (fundamental things that communities need, like housing, energy, water supply and food, owned by the community, not by private individuals, corporations or the state).

    How they work

    Imagine a group of local people or a community energy scheme who want to build a wind turbine or install solar panels on roofs to provide the community with electricity, but they don’t have the money to do it. Currently, they could go into debt or set up a company and give away part of it as equity, neither of which is ideal.

    What they can do instead is to issue UCOs, denominated in units of electrical energy (effectively, kilowatt-hour vouchers) as a way of raising the money to put up the turbine. The UCOs are sold at a discount – i.e. less than the current price of electricity (because the issuing group is asking for your cash to do some work).

    Store of value: we’ve been promoting the idea of mutual credit as a means of exchange for a few years, explaining that if the exchange and store-of-value functions of money aren’t separated, the means of exchange will be extracted from communities and concentrated. If mutual credit is the means of exchange, use-credit obligations are used to save / store value.

    UCOs as savings

    If people believe that the price of electricity is going to rise, they will want to buy expensive future electricity at today’s prices.

    This is why they’re such a good savings instrument – and particularly if you have a ‘basket’ of them. If you only have kWh UCOs, then when you retire, you’ll have to sell some to buy food and other necessities; but if you live in a community where you can buy energy, rent, water and food credit obligations, and maybe even care credit obligations, then you’ll have real security – all the things you need, at less than current prices. And if you don’t need some of those UCOs, you can sell them at the current price of what they represent.


    The basic idea isn’t new. Medieval ‘market money’ vouchers / tokens (see video) were in effect UCOs.

    A famous UCO scheme was ‘Deli Dollars’, where a deli in Great Barrington, Massachussetts in 1989 needed $4500 to move premises, but couldn’t get a bank loan. So instead, they issued vouchers for food provided in the deli. They sold 10 deli dollars (that can get you $10 worth of produce) for $8 – a 20% discount. Demand was high, the deli made $5000 from the sale, local businesses began to accept them as payment, and they started to circulate as currency in the town.

    When people bought deli dollars, the new premises didn’t yet exist – but the original deli did, so even if the new premises never opened, they could still spend their deli dollars in the original shop. There was no risk (unless the deli went bust). But if we go back to our energy group, selling energy-credit obligations (ECOs) to install renewables, they’re not currently producing energy, so it’s high-risk, as there’s a chance that the installations may never happen.

    The market currencies that Paul Grignon talked about in ‘Money as Debt’ were really UCOs – that were eventually banned by the state.

    Chris Cook, senior research fellow at the Institute for Strategy Resilience and Security at UCL, came up with a solution. He invented a two-stage process, whereby potential buyers were asked if they’d buy the ECOs when the turbine was close to being operational – once a significant amount of risk had been removed, in other words. Buyers provided an expression of interest in buying a number of ECOs when a certain stage of construction was passed. Once the community energy group had enough of these local promises, they could show them to (more hard-nosed) specialist energy investors and ask them to buy ECOs for the high-risk part of the project (at a larger discount, because of the higher risk), and show that they’d make a return by selling the ECOs on to locals, who’d already promised to buy them once the project was close to completion. (Even better, is to get the investors to agree up front that if enough locals make promises to buy, they will put the money up.)

    Let’s say the turbine cost £1 million. So the group issue kWh tokens worth £2 million, and sell them to the investors for £1 million in cash. When the turbine is almost built, and the project has been ‘de-risked’, those investors can sell the ECOs to the locals, and make their profit. But this works out much cheaper than standard finance for the local energy group – who would otherwise be paying interest over 20 years. It’s short-term investment for the high-risk part of the project.

    Chris Cook came up with 2 inventions to reduce the risks of investing in UCOs, and to avoid regulatory capture (below). He explains more here.

    Avoiding ‘regulatory capture

    Another important Chris Cook invention was to make UCOs assignable, not transferable. To explain: a £10 note is transferable. Anyone who gets it can spend it, and it doesn’t matter where they got it from. They might have found it, or got it from someone who stole it – but they can still spend it. No-one will question where they got it. Transferable is clean and anonymous. That’s not the same for a cheque, which has (had? Does anyone use cheques any more?) someone’s name on it. It used to be that cheques were assignable – you could cross out the name on the cheque and write another one. The banks didn’t like this, as circulating cheques meant that people needed to borrow less money from banks. Plus it made the money supply hard to control, and there were fraud issues etc. But you could make a cheque non-assignable by drawing two lines through it. That was called a crossed cheque. Now, crosses are automatically printed on cheque books. So cheques became non-assignable and non-transferable. Banks were very happy to make cheques non-assignable, because it increased their hold on everyone’s finances.

    So – looking back at our energy example above – what assignable not transferable means is that the local energy group holds the register of who’s got the ECOs. If I own some, then I’m the registered holder of those ECOs in the ledger. If I want to sell them, I can only do so to those registered with the energy group, and the energy group can refuse to register anyone they don’t like, for ethical reasons, or because they think they’ll siphon profits out of their local area. The commons groups have control of who they have on the register. This means transparency – anyone who owns the ECOs can find out who else owns them, so the group can make sure that ownership doesn’t become too concentrated, and they’re not used for speculation.

    This protects against ‘regulatory capture’. If you’re offering what look like investment instruments on the open market to the public, in the UK you’re going to be investigated by the Financial Conduct Authority; and if you get big enough, you’re going to be of interest to the Bank of England’s Financial Policy Committee. If you challenge the status quo, the govt. can introduce laws that make things hard for you. Community Energy groups know all about this – they’ve had regulations changed that made life more difficult for them. But if the issuer of UCOs is a membership organisation with a register of member-investors, the regulator has very little influence, because all members have signed up, and they’re all part-owners. Governments can ultimately do what they like, so it’s not impossible, but it’s much harder, without changing fundamental legal principles.

    Regulatory agencies are open to being influenced or corrupted by wealthy corporations that they’re supposed to be regulating – so big energy companies, for example, who may not like energy supply being brought into common ownership, might try to influence regulators to move against it. The fact that issuers of UCOs are membership organisations with registers of member-investors makes them less vulnerable to this.

    What UCOs can be used for

    UCOs can help build the commons in all sectors, including housing (rent-credit obligations), land, water, food, digital infrastructure (broadband connection, mobile masts and a commons wifi connection for the town, that can be accessed by everyone) etc. Some are more complicated than others. Energy is denominated in kWh, but food isn’t standard – a loaf of bread and a pound of apples are completely different. So what do we denominate food-credit obligations in? There could be a UCO for a standard weekly veg box delivery, or there could be a standard ‘staple food basket’. It’s harder, but not impossible.

    The detail, including the legalities, will vary greatly between sectors. Island Power are setting up energy schemes on islands (which often are not part of a national grid). They’re making progress in Trinidad & Tobago and the Channel Islands, and recently gave an address to 18 Polynesian nations – vulnerable because they’re at the end of all supply chains, with unreliable energy and water supply (and maybe soon underwater).

    Tally sticks were UCOs used by Kings of England from Henry I to allow subjects to pre-pay taxes at a discount. Notches were made on hazel sticks that were then split in two along the grain – one half for the taxpayer and the other for the state / tax authorities. When the two halves were put together, the notches had to match. It was an early form of very natural encryption!

    Here’s an interview with Marcus Saul of Island Power, who are using the UCO idea to build energy commons projects.

    NB: Community-supported agriculture schemes use a use-credit-obligation-type system to provide money up front for local farmers to pay for supplies / equipment etc. and customers get food when it’s harvested. ‘Food-credit obligations’ if you like.

    What are the benefits of use-credit obligations?

    Help build the commons

    Commons groups don’t have to go into debt or give away equity – a sure-fire way of delivering infrastructure back to the capitalist world. A UCO costs nothing for the issuer to provide. The commons sector hasn’t been able to grow to obtain infrastructure, because they’d have to go into debt or give away equity; then they’d have to make a profit to pay back the debt and to pay shareholders; wealth would leave the community and they wouldn’t be a commons any more. UCOs offer a savings instrument for the new economy that is non-extractive (if they’re managed well – i.e. they’re assignable not transferable), because they don’t give investors power. Investors can’t corner the market, because the commons group can just issue more, and they can also refuse to sell to individuals or companies that have too many already.

    Use-credit obligations
    Deli owner Frank Tortoriello wanted to move his deli to a new premises in Great Barrington, Massachussetts, in 1989, but couldn’t obtain a bank loan. He issued ‘deli dollars’ – vouchers for future produce that were a roaring success, and allowed him to make the move.

    Safe investments

    It’s the 2-stage investment process outlined above that make them safer than crowdfunding, which is quite high-risk, because there’s nothing to purchase with them straight away. If you don’t like what you eventually get – i.e. if it doesn’t live up to expectations, you might not get your money back.

    Inflation-proof savings

    They’re a very interesting form of savings, because they’re not denominated in national currency, but in useful things, like energy, food, rent for housing or office space, haulage, or any product or service. Energy-credit obligations are denominated in kWh, for example. This means that this kind of saving is inflation-proof, because a kWh now is the same as a kWh in 10 years’ time. The UCO will be good for the kilowatt-hours specified, any time in the future, whatever happens to the price of electricity.

    Don’t invoke ‘Jevons Paradox’

    Jevons Paradox describes attempts to conserve a resource that end up increasing its use. If you insulate your house and so your energy bill goes down, you might spend the money you save on being a bit warmer, therefore increasing energy use again. But if you’ve pre-paid for your electricity by purchasing ECOs, you might see them as savings, so you’re more likely to want them to last, and be less inclined to turn up the heat, because your savings will start to disappear.

    Use-credit obligations
    Island Power are helping set up renewable energy systems on islands, from the Pacific to the Channel Islands, using energy-credit obligations (ECOs).

    Can outcompete the corporate sector

    There’s nothing to stop corporations from selling UCOs, but they’d face barriers that community groups wouldn’t. For example, community groups would be able to offer lower prices or annual rebates / dividends that corporations wouldn’t because of the need to generate profit for shareholders. So community groups would offer better value. The community sector hasn’t been able to compete with the corporate sector before, because of the difficulty in obtaining investment. UCOs change that. Also, community groups can be membership orgs in ways that corporations can’t, and so can avoid regulatory capture. We can start to build the commons in ways that have been impossible for co-ops, mutuals, community land trusts etc. because of the problem of debt.


    Commons groups can provide sustainable infrastructure – renewable energy, natural buildings, compost toilets and reed beds for sewage, organic food etc.

    What can I do?

    Think about what UCOs could be used for in your community. Apart from the examples above, they could be for something specific like an independent cinema / hotel / leisure centre. Contact us to let us know what you’d like to see in your community, and what would be your potential role. Would you like more community-based savings? Are you keen on renewables, local smallholdings or commons housing? Are you interested as a potential consumer, investor or commons builder? We’ll collect contact details for possible projects. Tell your friends about this too.

    It’s been difficult to challenge the current housing system via housing co-ops, community land trusts and various other mutual-ownership approaches, because of the need for groups to go into debt to get started. Rent-credit obligations allow community-based housing to grow without debt.

    We’d like to hear from people willing to co-design robust legal and governance models. Once these are in place, we’d like to support some candidate groups with promising ideas.

    The Credit Commons society is progressing a design for commons housing, so we’d especially like to hear from anyone willing and able to contribute to that work.

    We’ll be adding new topic introductions on how UCOs can be used in all sectors – housing, energy, land, care etc. There are already developments with which you can be involved from the start – housing commons and energy commons.

    Thanks to Dil Green of Mutual Credit Services and Chris Cook of Island Power for information.

    The specialist(s) below will respond to queries on this topic. Please comment in the box at the bottom of the page.

    Chris Cook was a legal designer, developer and regulator of markets and enterprises for 3 decades, for 6 years as a director of the leading global energy exchange, responsible for legal design of the UK ‘Balancing Point’ natural gas futures contract & market. Since 1998 Chris has researched and developed innovative legal, accounting and technology platforms. Senior Research Fellow at the Inst. for Strategy, Resilience & Security at UCL.

    The views expressed here are those of the author and not necessarily lowimpact.org's


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