8.2 Complex Supply Chain Financing

The same logic can be extended to any network of market actors that maintain complex and interdependent industrial relationships. In such networks, value may travel up and down the supply chain until it is finally presented to the end-consumer as a finished commodity. A mutual credit based bookkeeping logic, conjoining the various participants of such a supply chain, can serve as a “railway” on which value bounces back and forth frictionlessly until it arrives at the consumer.

Such a relationship between various prosumers in a supply chain could be described as a game of “musical chairs” - the different actors create, exchange and settle mutual obligations constantly, dipping in and out of mutual debt without having to exhaust their cash reserves, but the moment the music stops, meaning a finished product has been shipped to the end consumer, some parties may be in net deficit while others may be in net surplus of units of account. A simple cash settlement between the indebted party and the holder of the surplus units will now clear all mutual obligations of the entire network.

If the entire supply chain needs external liquidity to kickstart production in the first place, this “game of musical chairs” can be used to significantly simplify otherwise complex supply chain financing programs. In such a case an external creditor would join the network and commit to sell and buy the used units of account against fiat currency or the required means of payment. In this case the creditor would function more as a market maker who buys at a discount and sells at a premium. This way supply chain participants with a surplus of internal units of account could use them to access goods and services external to the trading network, while participants with trade deficits would have to purchase them with fiat if they can’t settle their debts within the trading network.

This way credit would be made available to the entire supply chain, used only by whom and as far as necessary, thus reducing the cumulative cost of credit significantly.