> Exchange rate mechanisms & balance limits
The impossible trinity applies equally to credit commons economies as to national economies: The Impossible trinity (also known as the Trilemma) is a trilemma in international economics which states that it is impossible to have all three of the following at the same time: - A stable foreign exchange rate - Free capital movement (absence of capital controls) - An independent monetary policy.
Since the credit commons is a tool for distributing political power and issuance of credit to the local level, independent monetary policy is not negotiable. A stable foreign exchange rate is maintained by curbing imports and exports, which is to say, balancing exports and imports. This gives every community an incentive to produce if wants to import and to spend if it wants to export. The designers of the Euro would have done well to apply such an ethic.
Furthermore, speculation and price manipulation of currencies is contained according to the proportion of each community’s credit which is allowed to circulate outside its own accounts.
The post gold-standard FOREX system of currency exchange is a free market; this design has a self correcting mechanism which helps to keep prices stable. As the price of a currency deviates from its actual purchasing power, the price of goods and services in that country becomes distorted in a way that attracts trade in the opposite direction. For example, if a currency is undervalued, that country’s exports become cheaper, and demand for them increases, which drives up the currency price. This tendency towards stability is desirable in the credit commons.
But within that framework, it is possible for a community with a sovereign monetary policy, to stabilise its own prices using credit/debit allocated for that purpose. This is perfectly sound practice as long as the limits are respected. All communities are allowed to issue credit/debit and can use it equally for liquidity with other communities or for stabilising their own currency. In the case of fraud, damage would be limited only according to how much trust had been allocated to the rogue community, and would not be contagious.
In small scale systems the precise exchange rate matters much less. The largest community currency system has been running 15 years using exchange rates fixed a long time ago, and had no issues.
The question remains then, as explained above, how balance limits are decided between member exchanges. Greater balance limits mean greater risk, which is to say greater impact in case of failure to return to zero. Each group should decide its own process/formula through a political process. Limits should be imposed by a custom script or plugin in the accounting software and not set in stone. There are plenty of examples from which to take inspiration.
In the banking system it is normal to grant individuals overdrafts up to two months of salary without asking too many questions. Larger loans, for commerce and business startups, need to be scrutinised by the bank which has a mandate to be risk averse.
Every business barter network has its own formula or process for allocating credit, which usually takes into account the desirability of the applicants produce and their trading volume.
Within LETS, there are many theories about how balance limits should be determined. Typically a minimum limit is given to new members, which increases proportionately with volume of trade.
> BOX: In Western Austria 'talents' were flowing from a rural Tauschkreis to a nearby urban one and both systems on were stuck on their respective limits and in danger of freezing. They put their heads together and organised a rural festival and bussed in the city folk to spend their talents back and restore the balance.