馃摀
Old ReSource Whitepaper V1.0
  • 00 Glossary
  • 01 Executive Summary
  • 02 Mutual Credit
    • 2.1 Definitions and Rationale
    • 2.2 History
    • 2.2.1 WIR Bank
    • 2.2.2 Modern Multilateral Barter Networks
    • 2.3 Mutual Credit on the Blockchain
    • 2.4 The Basic Economic Questions for DLT-based Mutual Credit Systems
  • 03 The ReSource Protocol
    • 3.1 Introduction
    • 3.1.1 Distributed debt collection and obligation enforcement
    • 3.1.2 Distributed risk management
    • 3.2 Underwriting and risk assumption
    • 3.2.1 The Underwriting process - a breakdown
    • 3.3 Ambassadors and network administration
    • 3.4 Monetary Flow , Reserves and Default Insurance
    • 3.4.1 Default Insurance
    • 3.4.2 SOURCE Reserve and stable coin pegging mechanism
    • 3.4.3 rUSD on the Open Market
    • 3.4.4 SOURCE Token Dynamics
  • 04 Protocol and Network Governance
    • 04 Protocol and Network Governance
    • 4.1 Reputation
    • 4.2 SOURCE Governance Token
    • 4.3 Initial SOURCE Allocation and Distribution
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  1. 02 Mutual Credit

2.1 Definitions and Rationale

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Last updated 3 years ago

Mu路tu路al Cred路鈥媔t [myo蜑oCH(o蜑o)蓹l 藞kre-dit] - A network, in which created money serves as medium of exchange. Mutual-credit money comes into existence as a result of a transaction between two parties in the form of a corresponding credit and debit on the balances of the parties involved. As a result, the total amount of money deposits within the system always matches the total amount of deficits. While definitions may vary, such a credit system is considered to be fully mutual if debtors and creditors are essentially the same people and frequently switch roles.

A mutual credit network begins its life-cycle in a zero-deposits state, in which no money exists within the system. At this stage, all participants are being assigned empty accounts which can be overdrafted up to a predetermined sum..

Money is introduced into the system once a participant, Alice, decides to purchase an item from another participant, Bob. To do so, Alice has to create a deficit on her account which will then appear as a deposit on Bob鈥檚 account.

The same way, Carol will have to overdraft her account to purchase an item/service from Alice, returning Alice鈥檚 balance to zero.

If Bob now decides to purchase an item/service from Carol, his deposits will be remitted to her, covering Carol鈥檚 deficit while returning both their balances to zero. At this stage the network returns to its equilibrium zero-deposits state in which no debts, and hence no money, exist within the system.

Money created via this mutual debt-cycle retains its value by the fact that each money-unit in existence is required by someone within the system to close their debt; hence the supply of money always entails matching demand. The global limits of this elastic money-supply are determined solely by the number of participants within the network and the amount of debt each of them is allowed to consume. Consequently, the so-created money supply continuously contracts and expands to meet the changing demand of the economy it serves.

Socio-politically speaking, mutual credit systems have the tendency of morally equalizing borrowers and lenders, while significantly reducing the capability of the latters to rent-out artificially scarce currency-units to the formers. Following the logic of its proponents, this way mutual-credit systems expose Capital to the same form of market-competition to which all other goods and services, such as Labor, are subjected.

multilateral exchange
endogenously