Fair.Coop is counting on its monetary innovation, Faircredit, to build a new, more equitable and globally efficient economic system, resulting from its complementary relationship with FairCoin and the work of Fair.Coop and its members.
Its expected release date is January 2015.
This is our blueprint: Faircredit is the monetary system of mutual credit globally supported by Faircoin. It serves as a vehicle of economic exchange and credit expansion and contraction among Fair.Coop members, thus reducing the need to spend faircoins and deepening its store of value function, while also providing better mechanisms to promote credit and economic exchanges.
The requirements for participating in Faircredit are the same as those for being a full member in Fair.Coop.
Unlike Faircoin, Faircredit is only accepted within Fair.Coop, and cannot be used for buy/sell transactions with individuals or companies that are not members of Fair.Coop.
With this, the economic system promoted by Fair.Coop will use several currenciuies with complementary functions, as explained in Building a new economic system.
Terminology and concepts
To facilitate understanding of the proposal, we’ll use the following terminology:
- Faircredit: mutual credit currency in Fair.coop
- FairCredits: Faircredit account balance, if it is positive
- Available credit: difference between current balance and the agreed Faircredit expenditure ceiling
- Credit: the part of the available credit that can be used to increase someone else’s credit
- CreditsFair: Faircredit account balance, if it is negative
By default, a new account will show 3 concepts:
- An initial balance of 0
- Available credit: the amount the user can spend
- Faircoin credit: it will be directly related to available credit
The level of credit available to each user will depend on several factors, which the computer system will be responsible for automatically calculate:
- The minimum credit available to any user will be by default the amount of Faircoin savings in their Fair.coop account they release into their Faircredit account (faircoins which, through a multisignature system, can only be moved only if they are not in the process of endorsing new credit).
- When a user is in need of investment on production means, their ability to spend Faircredit will be a multiple of the amount of saved or donated (eg x2) faircoins. Acceptance of the transaction by the provider will be enough since the credit transaction will be an autonomous operation in which only two parties need intervene.
- When a user needs to purchase production equipment and has Fair.coop members among their clients they may get an available credit equal to a committed consumption preset by all users with faircredits or available credit who confirm the order in advance, then when the sale is made, the seller will be responsible for restoring the account to the starting point before beginning a new production cycle.
- A decentralized mechanism for determining credit and endorsement will be created by entitling users with available credit they don’t need, to lend it to other users in a distributed way. This would be done so they would have to share the risk among several projects, such as a maximum of 10% of the credit project capacity. This would lock an amount of faircoins to endorse other users.
- Faircredits can not accumulate indefinitely, to avoid Faircoin competing with Faircredit as a value storage tool. The mechanism we will use to achieve this must still be studied, maybe a form of oxidation or expiration could do the job.
- Credit available to users who do not engage in fair.coop productive activities depend on two factors: their saved faircoins on one hand, and their FairNetwork karma on the other. The way both factors will interact to define access to credit is yet to defined.
- Faircredits can be converted to Faircoin at any time, on the condition of saving them for a period of time. These faircoins would come from a Faircoin cash fund especially created for Faircredit, which in turn could come from the Pool Fund managed by the Ecosystem Council.
- At the same time conversion mechanisms will be implemented to allow, yet discourage, Faircredit withdrawal from the Fair.coop system if needed by Fair.coop members to meet cash necessities. This exchange’s margin can be used, for example, to extended the cash fund until the initial payment can be reused for another project.
One more element to consider before launch is possible mechanisms to allow users to deal, through Faircredit, with personal or collective emergencies related to basic needs such as food, water, shelter, health and education.
Faircredit is therefore a project that incorporates lessons learned from various disruptive monetary theories and our own experiences. With Faircoin and Faircredit we hope to contribute to society with a more ethical, equitable and sustainable economic system.
More about mutual credit systems
Mutual credit, or mutual exchange systems are a logical evolution of community-based bartering. They have been driven by organizations and social groups in various forms for the last 30 years, though earlier examples can also be found.
A local exchange system uses no-interest loans for money creation. When two accounts make the first move, one of them records a positive balance, the other one, negative. This ‘overdraw’ is not debt, rather it is necessary to create money with a decentralized social currency.
For example, someone could participate in this economic system by performing an activity, for instance, a babysitting job, and get paid for it, generating a positive balance in their account. This can be spent on carpentry services from other partner system, which will pay for this positive balance. Account balances act as currency. All economic transactions are collected online, in a location open to participants in the system so that it is transparent to them. This monetary system can also be called mutual because beneficiaries of the network are the same people who work in it.
As we have seen in the case of Faircredit, it will be a mutual credit system, though evolved to allow credit expansion and shrinking among participants.