The basic idea behind Mutual Credit Clubs is to operationalise the trust that already exists between groups of local traders who know each other and trade with each other and turn that trust into something tangible, like access to credit.
The theory behind the idea is outlined in this video here:
This credit can then be used to pay for services from other services in the network.
One of the advantages is that this shields the individual trader from the risk of taking on credit themselves - if I Give Dave 10 loaves of bread on credit personally and he then he gets hit by a car that afternoon and dies, I'm out of pocket, but if he'd 'drawn down' on his stack of credit from a mutual credit organisation then the group would soak up this loss rather than me as an individual.
Or in maybe a more 'business like' example - if one trader goes out of business then the local group soaks up the loss rather than individual companies.
In principle I kind of like the idea as it means local networks of businesses acting like a safety net rather than Nation States, so it's quite the decentralised solution.
Mutual Credit Federations
The next level is to federate local mutual credit clubs so that individual clubs can trade as a block between themselves, presumably making larger and more diverse trading arrangements possible.
All of this can be done without the need for businesses to seek loans from banks or aid from governments, taking advantage of the face to face trust to keep themselves going rather than centralised institutions.
NB - the 'credit' generated in such clubs isn't intended to be used for savings or long term investments, it's more of a cash-flow kind of money, pretty much limited to that function as I understand it.
In principle the idea is like the old LETS bartering schemes, except this is for businesses and there is more emphasis on expanding out to more people through federating - the problem with many of the local LETs schemes is that they either folded, or just ended up being closed friendship networks who occasionally swap goods and services
This is crying out for a blockchain 'second layer solution'
It isn't too far into the video that there's mention of 'ledgers' - a word which instantly gets yer blockchain spider senses tingling....
Every club is a stand-alone, mutual organisation, owned by its members, runs its own internal accounts system. Each ledger can then federate to another ledger, and the ledgers aren’t strictly linked, they’re just connected by messages about trades. ‘I want to send 100 credits to this business in your group’ – is a typical message. So we’ve got that software up and running, it’s open source (and in a reference implementation), which is great. What then matters for each club is how they send those messages. That’s going to be different in different contexts.
This is the bit where I started to think this all sounds a bit opaque and disconnected - I can't think of any advantages to having (possibly millions of) closed accounting systems and then just 'connected by messages' - it all sounds a bit limiting.
Then I thought of 'second layer solutions' like we've kind of got here with the tribes/ tokens on Hive - it's no different really - having a community blogging about LEO, using LEO, or having a local trading group trading and creating a 'region 8372 credit coin' - all they'd need is a front end, a token creation and distribution mechanism, which could involve local face to face verification in order to be able to access tokens, but then if it was on chain, individuals within that local trading block could choose to 'sell' their credit for other tokens, removing the restrictions that come from localism and federalism.
It'd be better right?!?
Unless I'm missing something this seems to be a very tangible use case for a chain, and Hive seems quite well suited to it!?!?
Find out more:
I first read about this concept on this low impact blog post.