Circular Economy

Our page on community wealth building considers collaborative finance tools from a purely value-production angle, exploring their potential for underpinning local economic exchange, capacity, and resilience. In the overarching context of the climate crisis, this is insufficient. No significant action should be undertaken without considering its potential to mitigate the destruction of the biosphere that threatens our civilisation, and here too collaborative finance has strongly favourable characteristics.

In the current economy of global supply chains – starting with extraction at one end and the dustbin at the other – circularity of trade is not emphasised, but rather verticals, each step adding a little value until the product arrives at the consumer, whilst money flows in the opposite direction. The drive in this ‘linear’ economy is the accumulation of money units, and this requires continuous extraction of raw materials and labour power, plus the resultant ‘externalities’ of pollution and resource depletion. Value production is considered a necessary cost along the way to making money, rather than the primary purpose. The economy has become a machine for turning the biosphere into money tokens, whilst typical localities – embedded in the global financial system – neither create or retain purchasing power.

As long as economic relations are mediated and transacted via the financial system, policy drivers whilst a necessary part of the picture will be limited in their effectiveness at satisfying human desires through added value, rather than with an endless supply of extracted raw materials and monetary accumulation. We can therefore see that although the term ‘circular economy’ is typically understood to refer to material flows, circular financial flows are necessary for such an economy to emerge and become self-sustaining.

In a collaborative finance economy, the emphasis is not on accumulation of units in an account, but rather on value production enabled by local credit issuance and redemption. The extent of collaborative exchange is in fact constrained by this same ‘circularity’, i.e. the extent to which ‘loops’ (circular patterns of obligations) can be supported and created. Mutual Credit Services’ tools, such as multilateral obligation set-off, mutual credit, and use-credit obligations all identify and directly reward such loops. They also enable socially and environmentally positive initiatives at all scales – from individual organisations through to community infrastructure – to be funded, increasing variety of exchange and deepening circularity.

Straightforward financial incentives benefits therefore drive bottom-up growth in local material circularity. Since this is limited by access to materials (raw or processed), the tendency over time will be towards increasingly adding value to what is available locally. Increased capacity and shorter supply chains build resilience – especially in key areas such as food security – and reduce environmental impact, complementing policies aimed at mitigation and adaptation to the climate and ecological emergencies.

Of course, all this focus on localism is just that – a focus. It is neither expected, nor desirable, that local economies should become entirely self-sufficient, entirely self-contained. The purpose of an economy, after all, is to support diversity and specialisation to allow people to flourish in myriad ways. So while local circularity of trade needs to be significantly increased beyond the current desperately weakened condition, this won’t be achieved overnight. Particularly at the outset, circularity will be low, trade imbalances are inevitable, and the majority of supply and demand opportunities will sit outside any single network.

These conditions cannot be addressed by simply building a larger and larger network. Overly large networks generate less trust and require centralised management, which increases costs whilst reducing autonomy and resilience. MCS projects therefore exist in the larger context of our work to build the Credit Commons, an emerging structure of exchange that is simultaneously decentralised and diverse, yet interconnected.

Further reading

Completing the picture: How the circular economy tackles climate change, Ellen MacArthur Foundation, 2019.

Iosifidis, G. et al., Cyclic motifs in the Sardex monetary network, Nature Human Behaviour, 2018.

Fleischman, T. et al., Liquidity-Saving through Obligation-Clearing and Mutual Credit: An Effective Monetary Innovation for SMEs in Times of Crisis, Journal of Risk and Financial Management, 2020.