Credit and Debit Limits

[Tim Jenkin]

Credit and Debit Limits

What are credit and debit limits and why do we need them in a community of givers and receivers promoting the notion of abundance? Surely limits create a shortage of the currency, taking us back to debt-based conventional money where those of us who are short of the stuff have to borrow it from those who have a surplus?

Credit and debit limits are absolutely essential for the health of an exchange. In the CES we do not impose 'hard' limits where the system stops working if you breach them. Our limits are 'soft' in the sense that they represent a recommended point beyond which it is in no one's interest for traders to venture. Thus if someone goes over their debit limit it means that they are very unlikely to give back to the community goods and services in sufficient quantity to 'clear' what they have taken. We all suffer because they are in effect 'stealing' or living 'parasitically' off the community. Likewise, if someone goes over their credit limit it means that they are finding it difficult to spend their credits and are not giving others the opportunity to earn them. Most likely they will become frustrated and leave the system because they will believe it does not provide for their needs.

Limits are not a fixed quantity. Where an exchange uses them they are usually set at a relatively low amount for new users, but if they prove that they are capable traders (i.e. they always sell as much as they buy; they earn as much as they spend) then they can 'push' their limits to the unlimited. The limits are not there to restrict trading, just to keep it balanced.

Some new users join with the mistaken belief that the starting debit limit is a line of 'free credit' 'given' to all new users who join. In other words, they can spend up to their debit limit before doing anything, or even that they can freely grab their debit limit's worth of goods and services and then disappear!

That is most definitely not the idea of limits. These limits should be seen as the outer bounds of a 'safe zone' within which traders should always try to remain. To ensure absolute health all users should attempt to keep their balances as close to zero as possible. This does not mean that they should not trade, but simply that they should aim for their mean balance over a period of time to be as close to zero as possible. This indicates that they are getting the most out of the system: they are giving as much as they are receiving. Zero Point is the magic health formula for the CES. The entire system adds up to zero (total sales = total purchases; total income = total expenditure) and if everyone tries to keep their balance in the region of zero then we know it is working and everyone is happy. If we have a situation where many traders are over their limits at either end, then we know that we have a seriously sick exchange and that it will soon die.

[Chris Caston]

One possible way to discourage hoarding and increase economic activity could be to introduce a demurrage.

http://www.transaction.net/money/glossary.html#demurrage

[Chris Caston]

Very good advice Tim.

If someone gets to low they need to sell something or do some work. If someone gets to high they need to give some work to someone or make a purchase. :)