Community Based Banking (1) Recording Transactions

Most modern people assume that a money system has to be established and regulated by the government. Those who reject this view tend to assume that money must be based on a precious metal like gold. Both these views are wrong.

A money system can emerge in any community where people trust each other. All that is needed is a few people that are trusted by everyone in the community. Christians need to understand this. The money systems of the world are shaking and may eventually collapse. Christian communities should be strong on trust, so they will be well placed to develop to stable money systems to replace the ones that have failed. In this series of posts I will describe how a community-based money and banking process could emerge and grow.

Recording Transactions
A community-based banking service would most likely start when a trustworthy person starts supplying goods and services to other people in exchange for things that they need. The trustworthy person might begin recording their economic transactions. The process would not need to be sophisticated. A slate or exercise book would suffice. If the trustworthy person trusts some of the people being supplied, they might be given them credit by allowing to buy goods without paying for them straight away. The trustworthy person would keep a slate recording the amounts that various people owe. Keeping records in this way would enable the trustworthy person to become an active trader in the community.

Provided they trust the person keeping it, a person clearing their slate might provide more goods and services than they owe. Their record on the slate would be changed from a negative to positive. By recording negative and positive values, the slate would develop into a record of debits and credits. The trustworthy trader would owe things to some people and be owed something by others. These economic transactions would be recorded on the slate or exercise book.

The next step in the development would be for person who has received something from another to settle their debt by asking the trustworthy person to reflect this transaction on the slate by changing their balance to negative and changing the record for the person supplying the goods to a positive value. The trustworthy person would facilitate trade within the community by recording debits and credits and shifting them between people as they exchange goods and services.

The trustworthy trader could extend their business by providing the same recording service for other producers and traders. Many of these would not have sufficient trust in the community to be able to do this for themselves. People could then start bringing their surplus goods to the market and sell them to any other trader in return for a credit with the record-keeping trader. They could then use the credit to purchase goods from the traders who had what they wanted.

Once their service is widely accepted, the record-keeping trader might start recording the purchases and sales for everyone living within the community. Some might leave some of their credit with the record-keeper until they needed fresh goods later in the week. More people would use this record-keeping service when they see that many people trust the record-keeper trader and this way of doing business offer greater flexibility than barter.

If the recording business grows, the trustworthy person might need to charge a small fee for the service, but this specialisation would allow other people to focussing on doing what they did best. They would eventually give up trading and make their living from record-keeping. The trusted person could only specialise in this way, if they were scrupulous about maintaining the trust of the community. If the record-keeper were to start making mistakes, or was to shift credits onto their own account, people would quickly stop trusting them, and their business would die very fast.

Money emerged this way in many traditional communities. Most people would be self-sufficient for food. If they wanted to buy shoes from a local cobbler or clothing from a local garment maker, they would often buy it on credit, because, they might not be able to pay for it until the harvest had come. The cobbler would know his neighbours, so he would only give credit to those he knew to be creditworthy, ie those he trusted. The garment maker might buy some shoes by swapping some debts with the cobbler. Trade emerged with local traders keeping a slate of those who owed payment to them. Banking emerged when responsibility for recording uncompleted exchanges was taken over by a specialist.

The full series is at Community Banks.