This is the fourth in a series of articles looking at the development of Mutual Credit Services (MCS), whose mission is to help build local mutual credit ‘clubs’ in the UK and overseas, and to link them together to form a global moneyless trading network – the ‘Credit Commons’.

Here we’re looking at local authorities and ‘anchor institutions’ – large institutions that are anchored into their communities, like hospitals, universities or council offices. We want to make all this information as accessible to a general audience as possible. Most people have no interest in code, apart from knowing what it can do.

At Lowimpact.org, we’ve been talking about the potential for mutual credit to bring about necessary, large-scale change for three or four years. Mutual credit is a tool that can help decentralise the economy, boost small businesses at the expense of multinational corporations, build community and shrink the power of banks. Together with associated ideas, it can form the basis for a new kind of economy.

Members of the Lowimpact.org co-op are involved with Mutual Credit Services. We’re often asked about the current state of play, and so we’ve put together a series of 6 articles to explain what progress we’ve made.

Here’s the list of articles:

1. Introduction:
   Covid, the birth of Mutual Credit Services, and building a team.
2. Basic explanation of the Credit Commons Protocol:
   The Credit Commons is the mechanism by which mutual credit and other groups all over the world can be connected to form a new global trading system – presented in an easy-to-understand way.
3. Business-to-business ‘Trade Credit Clubs’ and credit clearing: A very simple way to introduce the mutual credit idea to small businesses – trade credit, something they’re already familiar with.
4. Local authorities & anchor institutions: Introducing the concept to local authorities – as a way to help their local businesses that are having cashflow problems.
5. Community groups & individuals: How to allow community networks and individual consumers to play too!
6. Investments, savings and location: How to develop non-extractive, interest-free savings and investments in communities, alongside mutual credit trading; and why physical location is important.

4. Local authorities & anchor institutions

By the end of 2020, then, we’d built a product prototype for business-to-business networks. What we didn’t have was a good software implementation of it, or a good model for municipals / anchor institutions (anchor institutions are tied to the community – like hospitals, schools, council offices etc. They feature prominently in the ‘Preston Model’). We had a story to tell to municipals however, and we put together a funding bid with Diana Finch of the Bristol Pound, which began to develop a model for local authorities. 

Around this time, we also met Tomaž Fleischman of Slovenian software company Be Solutions, whose paper with Paolo Dini of the LSE and Guiseppe Littera of Sardex we came across soon after publishing the Trade Credit Clubs idea. Astonishingly, it describes a national-scale credit-clearing network (in Slovenia) and provides empirical evidence of the benefits of credit clearing and mutual credit for the first time. It neatly matched our Trade Credit Clubs structure. So we now had proof of its benefits, in terms of reducing the need of small businesses for hard cash. We started to have conversations with Tomaž, we delivered a Zoom presentation with him, and now we’re developing a partnership and business offer with him.

Tomaž brought another tool to the table – The Tetris algorithm, which allows clearing opportunities to be identified from historical invoice data. What Tetris can do is to take a load of random invoices from a large number of businesses, and find the trading circles that can ‘net off’ (i.e. clear). Finding circular trading loops within a community is very hard, and we discovered why it’s so hard after reading Tomaž’s paper – it’s similar to the classic Travelling Salesman Problem, and needs a lot of computing power to solve. Tetris can’t solve everything, but it’s highly optimised. 

This gave us a way into municipals – we can say to them that if businesses in their area give details about invoices that they may have difficulty paying, we can find ways to help clear those debts. If debts are cleared, businesses can start spending again, which benefits the local economy. It’s what Chris Cook calls a ‘drain unblocking’. It has to be a big enough network to work well – with sufficient inter-trading, as few as 100 businesses are needed, but the benefits improve with scale; for a more general target, 1,000 businesses with some local presence should provide a good foundation. And municipalities will have more than 1000 businesses in their area. Plus it has to have a reasonable diversity of businesses – but again, this applies to most municipalities.

This approach could also work with, for example, a large accountancy business with 1000+ clients, or an accountancy software firm, with a million+ clients. Even an energy company with 100k+ clients, could realise that some of them are having trouble paying their electricity bills, so they could sponsor a Trade Credit Club so that debts can be cleared and everyone will be able to pay their electricity bill on time. It doesn’t matter what kind of group we’re talking to, as long as they can see a use for it; and in municipalities, the local authority or the local anchor institutions could sponsor the process, and would be trusted enough by their clients for it to work.

‘Cities Unlimited’ – More information on mutual credit for local authorities.

Next week: Community groups & individuals – how to allow community networks and individual consumers to play too!