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Values in Motion: Credit Circles

For easier adoption in different local areas, we propose the creation of Credit Circles as a methodology for different merchants, workers and communities at large to connect with each other, allowing the value system to emerge. The aim of building a Credit Circle is to facilitate trade between economic entities working in any given region.

Below is a sketch of how to build a Circle in three different steps, to facilitate the uptake of Circles. By no means it’s supposed to be a substitute for your own experience. It is merely a guide that you can use, adapt and build upon and add to. Like this, we can grow the experiences of creating democratic autonomous economies in your own organizing practice. As Circles evolves, we want to add your experiences to this handbook in order to enrich the journey of others!

The process of building credit circles works in 3 steps:

First part of the Circle: Merchant Network#

The first step is to onboard the local small and medium merchants in your area unto the system. Getting them a wallet is easy, keeping them engaged is the hard part!

To be successful, you have to first map out and connect the local businesses, cooperatives and all producers of stuff you can think of in your area. It might seem a bit of a chicken or egg problem at first. Do you onboard the farmer first or the supermarket first? Do you onboard the retailer or the restaurant first? Both need each other in some way. The answer is to do both! With the assemblies, you can discuss together these questions and come up with strategies and working groups to onboard them.

The first thing you have to decide in your local area is to establish a ratio between the amount of stuff merchants are committing to sell for Circles per month or per year and what merchants will be able to spend or buy. For now, we will call this the Circles Credit Line.

The amount that businesses such as the bakery commit should be % of their total turnover per year. On average, the Circles credit line that a business chooses should be about 2% of its turnover, whereas the volume of Circles the business commits to accepting in one year, should be approximately 10% of their turnover, or a ⅕ ratio.

These amounts can change (⅓ ratio , ⅙ ratio) but it’s important that there are always more goods committed than the Circles credit line. Think about it as the back-up of resources which keeps the balance of trade sustainable and the circles stable. The more people trade, the less collateral is needed as there is more trust in the system.

Let’s start with a baker#

Say the baker has a total yearly turnover of 50,000 € worth of sales.

You get the local baker to commit 10% of his total turnover = 5000 € worth of goods to be sold for the year in Circles.

You then collectively decide on his circles credit line, which will be 2% of his turn over last year, or 1000CRCs to spend within the network.

His ratio is therefore 5 selling to 1 buying. (5/1 ratio), assuming a 1:1 Circles to Euro exchange.

Merchants such as the baker who join the network will commit their future sales in Circles for one reason: to guarantee future value and fungibility to their currency. Fungibility basically means ability to spend their Circles. Future value means the sales that the baker is expected to make in the future.

What does this mean?#

Businesses are often not used to doing this and require some explanation and education before joining by the local organisers. You have to explain to businesses and merchants that the peoples’ currency is backed by their future sales (in our case, bread). This means that for Circles to work smoothly in your area, you want to make sure that there are more future commitments to selling products and services than money spent in the market. In other words, there will be more bread and other stuff available worth of Circles in the future than what the baker is currently spending in Circles.

In practice, even if the baker committed to sell 5000 euros worth of bread for a year, it does not mean they are guaranteed to sell that. They have to be active and nice to their customers if they want to sell that much. Facilitators and organisers have to tell businesses to be aware of what they are promising to sell for Circles, to make sure they don’t lose. It is a potential to sell, not that they will actually sell this. To start, this amount should be the surplus that the baker normally wouldn’t sell, the bread that goes to waste because nobody buys.

The key, however, to making their money circle around first lies in what they buy, not what they sell. Spending is the pump that makes the circles gain velocity. When organising Circles, organisers should suggest “why dont you buy first?” to businesses such as our baker. Basically, our baker should be encouraged to spend Circles at other vendors or partners in the network first, both to gain trust in how the system works and to see for themselves the benefits it brings. For example, the person who onboarded the baker and does marketing for them could be the first person paid by the business in Circles. To spin the circles, the baker has to spend them into being! Imagine you already built an initial small network to start circulating the currency. In our example, the baker should learn that they can buy flour, butter, milk and marketing for 1000 circles, maxing out their credit limit. Their balance between buying and selling would look something like this:

Month 1:
* Buy (Initial Balance of 1000)
* Sell (Bread committed: 5000)
-1000 (Circles spent)
Total Balance: 0 (maxed out their credit line)
Total Balance: 5000 CRC worth of Bread committed

When the baker sees customers coming back who want to pay in Circles, they can accept 50/50 co-payment (see below) in both Circles and the national currency. Extra sales usually means extra customers. In this way, the Circles credits they spent for marketing in the local community came back to them in the form of more sales. The point is to make their money come back to them (that’s why it’s circles!). In this way, by incentivising merchants to spend their circles first, they can be engaged, earning back Circles credits by selling their products and also earning in the national currency, in this case the €.

As new customers come, the baker sells bread for 500 circles PLUS an extra 500€ sales:

Month 2:
* Buy (Balance + 500)
* Sell (Sales of 500 in circles + 500€)
-1000 (Circles Spent)
+500 CRCs
+500 €
Total Balance: +500 CRCS (credit line becomes positive)
Total Balance:
4500 CRCs worth of bread committed remaining.
Extra Revenue: 500 €

Their credit line goes from 0 to +500 Circles. Their revenues in national currency goes up as well to +500 €. This shows the baker the power of solidarity: that the 1000 Circles Credit Line they had were without any interest and was generated by their peers in the network, who accepted CRCs from them and now it comes back to them in the form of more sales and extra revenue.

Due to its previous sale on month 2, the bakers Circles Credit Line went from 0 back up to 500. This means the baker can again spend another 500 in raw materials, which they do because it lowers their € cost. In the third month, the baker sold 1000 goods worth of CRCS and an additional sales of 1000€. The full circle looks like this:

Month 3:
* Buy (Current Balance: 500)
* Sell (Committed Goods: 4500)
-500 (CRCs spent in Raw Materials)
+1000 bread sales in CRC
+1000 € sales
Total Balance: +1000 (maxed out CRC credit line)
Total Balance: 3500 CRC worth of bread committed
Extra revenue: 1500€ (500€ + 1000€)

What is happening here?#

What makes the Circles spin is that the baker sees the benefits of first giving circles credits to others: their money comes back to them in the form of more sales, credits which can be again used in buying the flour and butter they need for making bread, and also in marketing and spreading the word about their freshly baked products.

Spending therefore works like a pump or an initial lighting bolt which powers CRCs to spin within the community.

In practice this means more revenue for them (in both CRCs and €) and lower net costs, as they can now pay in CRCs for part of the stuff any merchant needs.

By tapping into the baker’s underutilized resources aka the bread he would have otherwise not sold (10% of his turnover), he increases his sales, which increases his revenue in €, lowering his total costs by using Circles to buy the things he needs in the merchant network!

It might be awkward at first to ask a local shop about their turnover in sales. As a group organising Circles, you can start forms of play, bounties and games within your community and give people rewards in Circles for onboarding new businesses into the network, relocalizing supply chains and spreading the word about them, so others can go and spend there. For example, people and businesses can be incentivized by getting paid in Circles for every business they onboard unto the system.

Second part of the Circle: Workers Network#

The second part of the circle addresses the workers who are employed at these businesses or cooperatives. Employers can give benefits, wages and bonuses in Circles to their workers. Workers can also buy goods and services from within the merchant network. Similarly to the merchants, workers can also decide how much of their labor time they wish to add to the system and accept as payment for their work.

You can also, for example, bring in landlords and owners of land into the system through the different economic councils, to accept Circles either for rent or even for the buying of land. Following the example of the baker above, somebody employed by the bakery could get paid in Circles and use those Circles to pay part of her rent or to buy food for her dog.Workers, when organised, are very good at demanding things from their employers and landlords!

Additionally, the second part of the commercial credit circle opens to the third sector (NGOs, non-for profit organizations, churches, etc) rooted in the region, which widens the scope of activities offered within the network, creating and reinforcing long lasting relationships and trust in the wider community.

Third Part of the Circle: Community Network#

The third part of the circle involves bringing in the communities who the local businesses serve, providing a customer base capable of anchoring more wealth to the region, generating an exponential increase in the total number of exchanges. In this way, Circles becomes a daily tool which encompasses all aspects of everyday life, making a community basic income work for everybody.

What can the community do? For things to start rotating, you have to organize an alliance between the people in the community and the businesses long term. For example, a person who onboards a business might say:

"I dont have money but I have time and a lot of friends on social media. I can tell people in my circles to come to this bakery"

Social media marketing and word of mouth is a way where a person can support a business and get paid for it in Circles! If the baker is paying somebody to do some word of mouth and people start coming - small bounties - there you see on the merchant head that this network is useful in keeping me alive. With Circles you can meet your unused resources with peoples’ unmet needs. In practice the 3 parts of the circle can be organised simultaneously. We emphasize local producers and merchants in order to have a higher flow of goods which is useful for others in the network.