How does mutual credit work?

The workings of MonedaPAR


MonedaPAR is a mutual credit system. Following Gesell’s principle that money should be above all a means of exchange, the PAR token can only be used to purchase goods and services from other members of the network. When a purchase is made the seller receives a positive balance (equal to the price of the transaction) in his or her PAR wallet, while the buyer receives a negative one for the same amount. These balances can only be spent or compensated for by buying or selling goods and services, respectively, using PAR within the platform.

As all mutual credit systems, it works because participants have access to overdraft. This means they can buy products from others before selling their own, holding a negative balance up to a certain amount. In MonedaPAR overdraft is interest-free.The sole requirement to have access to overdraft is the endorsement of any member of the community. The executive committee of Moneda PAR (with representatives of all the participants of the network) is in charge of attesting that new members are capable of giving to the community production of his own for an amount that at least equals the value of the overdraft limit they are being granted. There are currently three types of predetermined limits which are given by the community’s types of users: self-employed workers, small producers and businesses. Yet it is not compulsory to get an endorsement to be part of the network: anyone who downloads the PAR wallet can receive payments for the goods and services she offers to the community. However, it is only through endorsements and overdrafts that the system grows and makes a meaningful impact.

For convenience, MonedaPAR has established a one-to-one relationship between PAR and the Argentine peso. Thus, in the PAR network the Argentine peso is the unit of account and the PAR is the medium of exchange. There is no institutionally guaranteed conversion between PAR and pesos. In a mutual credit system as MonedaPAR, money is not a financial asset but a tool to keep track of how much value has been given and how much received.

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