It has recently been argued/shown, that the WIR Bank in Switzerland is not a true mutual credit system, as it is the WIR Bank which creates the credit based on collateral.

According to Chris Cook, it is therefore not a true p2p system, what then, would be such a system?

He explains:

“This is an interesting architectural discussion. The relationship between the collective and the individual is key.

In the current ‘Market 2.0’ intermediated architecture, we see collective intermediaries – central banks for credit risk, and clearing houses for future market price risk – stepping between lenders and borrowers and between sellers and buyers, respectively to assume and aggregate (aka dangerously concentrate) risk in single points of failure.

In the WIR, as John says, there is essentially a central counter-party, but it is a very interesting (unique in my experience) hybrid in that commitment is asymmetric. That is to say the members cannot issue credit to the bank, which if they did would actually be ‘deposits’ and as we are sad enough to know, there are no deposits in a credit creation and clearing system.

In fact, the ultimate basis of the credit given by the WIR bank is – as it is for the banking system generally in respect of all secured credit – the use value of the asset which is given as security,typically land.

I was pointing out to Richard Logie that we must also be careful as to what we mean by ‘Peer to Peer’.

To me, this means transactions which are made bilaterally – A to B and B to A (we call them in Planet Finance ‘over the counter’ or ‘off exchange’) transactions.

These give rise to bilateral contracts and interactive obligations, A to B and B to A.

The question then is how these are settled, and the mutual credit clearing systems which he operates and for which GETS accounts creates a complementary currency (ie obligations by members) – as a ‘look-alike’ of fiat currency and records these obligations by creating matching (symmetric) debits and credits in respect of this quasi-fiat currency.

The difference between Richard’s architecture and the WIR is that Richard is not taking performance risk, whereas the WIR bank is, but backs it with productive assets.

In a true Peer to Peer system the record keeping is not centralised but decentralised and linked,and transactions may be kept open indefinitely until settled either by chains – A>B>C>D>E>A or with currency (fiat or otherwise).

This is precisely how the North Sea crude oil forward contracts settlement upon expiry through the generation of chains and the ‘netting’ of obligations down the chain without actually taking delivery.

The point is that in a TRUE P2P credit clearing architecture, there is technically no need for currency at all. However such a system would soon silt up as productive capacity becomes committed because settlement paths/chains do not exist or cannot be found and chain-settled.

So settlement will be made through the creation of ‘peer to asset’ credit/currency, eg rental credits; energy credits and IP credits.

This gives rise to questions of equitable access to the commons of land/location, energy, and knowledge (IP) which underpin such currencies.

It also raises the question as to how to guarantee bilateral performance without a central counter-party, and that is where the ‘guarantee society’ approach – which has existed in the City in the form of ‘Protection and Indemnity’ mutual risk assurance clubs for 140 years, comprises a solution.”