We are needlessly spending billions of dollars in interest payments every year to “borrow” our collective credit from the financial institutions. But we can reclaim the credit commons to facilitate the exchange of our goods and services for our mutual benefit.
“The credit commons has been the most overlooked aspect of the commons, yet it is the most crucial,”[i] according to Thomas Greco, a community economist, educator, and writer. As he states, “present day banking is mainly a credit clearing process in which additions and subtractions are made to bank customers’ account balances. However, banks perpetuate the myth that money is a ‘thing’ to be lent. If a client’s balance is allowed to be negative, the bank considers that to be a ‘loan’ and will charge ‘interest’ on it. Has the bank loaned anything? Not really. What they have done is to allocate some of our collective credit to the ‘borrower.’ For this they claim the right to charge interest.”[ii]
Canadian currency (like every national currency in the present system) is basically credit that is generated by making digital accounting entries,[iii] but every dollar must be repaid with interest, which keeps us in a collective state of perpetual debt. We’ve been lead to believe that all of this monetary debt can somehow be paid off if we simply cut expenses and work harder, and it isn’t supposed to matter if the work is unenjoyable, unproductive, or even downright destructive—as long as we’re remunerated for it.[iv]
Government authorizes the central bank and chartered banks to create money by simply allocating some of our collective credit. Government then “borrows” some of this money so that it can spend even more than it collects in taxes and other revenues, and this debt (principal plus interest) is passed on to taxpayers. Government has the option of letting its debts grow—as long as we keep paying the interest. Taxpayers in Canada collectively spent more than $60 billion last year in interest payments on all levels of government debt.[v]
Most of the money in Canada is created as so-called “loans” by the six largest banks. Financial institutions get to “lend” our own collective credit back to us—and charge us interest to “borrow” it.[vi] [vii] [viii]
Canadian money is not properly allocated for productive purposes. New money can be “borrowed” into circulation without necessarily bringing more goods and services to the market, which generally leads to monetary inflation and price inflation.[ix] But the Bank of Canada would have us believe that Canadian money is a reliable store of value—even though there has clearly been a substantial decrease in the domestic purchasing power of the dollar and a steady erosion of the value of savings since the central bank was established.[x] And the dollar isn’t even defined as a unit of account; what’s a dollar worth? The Bank might be working to maintain low inflation, but it’s actually possible to achieve zero inflation. Inflation is only a monetary problem.
The Bank of Canada adjusts interest rates to manipulate the price of credit,[xi] which unnecessarily influences our decisions to exchange our goods and services with each other. The central bank isn’t serving our best interests. The official monetary system is probably beyond repair. As Thomas Greco has said, “Measures to properly reform the money and banking system by political means have about as much chance as the proverbial snowball in hell.”[xii]
Fortunately we don’t need to wait for politicians or bankers to fix the monetary system—it works to their advantage, at our expense. And we don’t need to rely on central banks or chartered banks to control the allocation of our collective credit. We can start taking control of money and credit at the grassroots level to solve most of our monetary and financial problems and open the way to mutually beneficial trading relationships.
It’s important to keep in mind that money is primarily a medium of exchange, and money nowadays is simply credit (not something tangible, such as gold or silver). Credit comes from the Latin credere, which means to trust or believe.[xiii] We can reclaim the credit commons.[xiv]
We can create and issue our own money,[xv] like an IOU, to mediate transactions and exchange value. We can spend it to obtain goods and services, if we promise that we are willing and able to accept and redeem our money at face value (and possibly upon demand) by providing an equivalent value of products or services to settle our debts within a specified period of time. Properly issued money can be a useful medium of exchange, a reliable measure of value, and a stable unit of account. Currency can retain its value if additional money is only put into circulation for productive purposes when additional goods and services are brought to the marketplace.
We can even shift our attention away from money and focus on goods and services. We can use a cashless credit clearing system, which is basically an ongoing record or ledger of account balances; sometimes accounts will be positive (sales or credits) and sometimes they will be negative (purchases or debits), but the total of all account credits must always be equal to the total of all account debits. As Thomas Greco says, “Credit clearing is the highest stage in the evolution of reciprocal exchange, which, in effect, makes money as we’ve known it obsolete. The fact is that goods and services pay for other goods and services, whether we use money as an intermediate payment medium or not. Direct credit clearing makes the use of any third party credit instrument, like conventional money, unnecessary.”[xvi]
Credit simply allows for deferred payment as we exchange value, i.e. the goods that we produce and the services that we provide with our labour.
We don’t need to charge interest to allocate some of our collective credit to each other (for a specified time, with certain conditions) to facilitate the production, provision and exchange of our goods and services for our mutual benefit. Negative balances do not need to be charged any interest; positive balances do not need to be paid any interest. Interest rates do not need to be used to manipulate the price and availability of credit or to influence our decisions to trade with each other.
By providing a sufficient amount of interest-free credit to each other (with maximum debit balances or lines of credit) we can definitely help to reduce our overall debt levels, eliminate involuntary unemployment (but do less work), and reduce the overall price of production by eliminating the cost of interest on credit. A cashless system can also provide a cost savings by not having to produce notes and coins as tangible tokens of credit. Even the Canadian penny is now simply a money of account: a denominator of value that is only used in keeping accounts.
With appropriate rules, adequate supervision, and sufficient transparency and accountability there can still be effective oversight of the allocation of credit to prevent overspending and the misallocation of credit and loans.
A mutual credit clearing association can be owned cooperatively by all members. Anyone could apply for membership. A nominal fee (payable in goods and services) could be charged to cover the expenses for managing the operation of the system and keeping track of the accounts, even in a not-for-profit credit clearing system.
Members with positive account balances could choose to use their saved credits (from the sale of goods and services) to assist fellow members by providing loans or grants. Equity financing is also an option, with shared risks and benefits.
We don’t need to provide goods and services (or allocate credit) to those who are unwilling to provide an equivalent value of actual products and services that we need and want. But obviously we can still provide sufficient goods and services (or allocate sufficient credit to obtain necessary products and services) to those individuals who may be unable to reciprocate.
More of our wealth would be available to meet our needs if we weren’t collectively paying billions of dollars each year in interest payments to “borrow” our collective credit from the financial institutions. But we need to understand the fact that national currency is problematic because it is created as interest-bearing debt and is improperly allocated for unproductive purposes.[xvii]
If politicians ever decide to get on board with this then they could essentially eliminate deficit spending, balance government budgets, shrink so-called public debt, reduce taxes, eliminate inflation (which is like a hidden tax), and maintain the value of currency and savings…but don’t hold your breath waiting for that to happen.
Mutual credit clearing can reduce our reliance on banks and provide a large measure of independence from national currencies.[xviii]
Thomas Greco has suggested that the greatest obstacle to progress is the global interest-based debt-money system which the elite few use as their instrument for concentrating power and wealth in their hands, but he strongly believes that credit clearing exchanges are some of the "disruptive innovations" that are able to displace that system and empower us by decentralizing the control of credit.[xix] A global network of local credit clearing exchanges can provide a moneyless payment mechanism in which credit is locally controlled yet globally useful.[xx] As systems of cashless exchange continue to improve, proliferate, and scale up, they will provide a pathway toward a sustainable economy, greater local control, and a better quality of life for all.[xxi]
[iv] Personal communication with Keith Gilbert
[ix] Thomas H. Greco, Jr., The End of Money and the Future of Civilization (Vermont: Chelsea Green Publishing, 2009), 63.
[xv] Thomas H. Greco, Jr., Money. Understanding and Creating Alternatives to Legal Tender (Vermont: Chelsea Green Publishing, 2001), chapter 12.
[xvii] Personal communication with Keith Gilbert