Neutral Settlement Layer for Interoperability between Different Forms of Local Monetary and Financial Expression

Abstract

The paper addresses the late payment problem in B2B networks by multilateral set-off of mutual debts. It introduces as innovations in accounting 1) future commitments in addition to existing obligations and 2) a new notation to represent balance sheet relationships as net- work edges. It builds on them to develop 3) the concept of multilateral settlement flow as an innovation in the payment system. These innovations, in turn, lead to significant finan- cial innovations: 4) payment system neutrality, 5) monetary and financial expression, and 6) interoperability between non-convertible currencies. The paper asks two linked research questions: whether these innovations can increase a) the macroeconomic impact of local cur- rencies, and b) the ability of economic systems to meet sustainability expectations. A positive answer to both questions is argued through a “toy model” of a network. We also simulated the presence of clusters of companies transacting with inside money based on a dataset of more than 40,000 companies. Up to 95% of the total Net Internal Debt can be settled within the communities, with the remainder settled with outside money. The implication is that communities with sufficiently high internal trust will be able to use their own inside money and, therefore, to interact economically and financially with other communities and the fiat economy from a position of greater market power. Similarly, the expression of financial rela- tions such as p2p loans implies the ability to take charge of their financial needs with lower reliance on extractive third parties operating in outside money.