Liquidity-Saving through Obligation-Clearing and Mutual Credit: An Effective Monetary Innovation for SMEs in Times of Crisis

Tomaž Fleischman, Paolo Dini and Giuseppe Littera
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Tomaž Fleischman: Be Solutions d.o.o., Bleiweisova cesta 30, 1000 Ljubljana, Slovenia
Paolo Dini: Department of Media and Communications, London School of Economics and Political Science, London WC2A 2AE, UK
Giuseppe Littera: Sardex S.p.A., Viale Sant’Ignazio 16, 09038 Serramanna, Italy

JRFM, 2020, vol. 13, issue 12, 1-30

Abstract: During financial crises, liquidity tends to become scarce, a problem that disproportionately affects small companies. This paper shows that obligation-clearing is a very effective liquidity-saving method for providing relief in the trade credit market and, therefore, on the supply-side or productive part of the economy. The paper also demonstrates that when used in conjunction with a complementary currency system such as mutual credit as a liquidity source the effectiveness of obligation-clearing can be doubled. Real data from the Sardex mutual credit system show a reduction of net internal debt of the obligation network of approximately 25% when obligation-clearing is used by itself and of 50% when it is used together with mutual credit. These instruments are also relevant from the point of view of risk mitigation for lenders, based in part on the information on individual companies that the mutual credit circuit manager can provide to banks (upon the circuit member’s request) and in part on the relief that liquidity-saving provides especially to NPL companies. The paper concludes by outlining recommendations for how even greater savings could be achieved by including the tax authority as another node in the obligation network.

Keywords: invoice-netting; obligation-clearing; mutual credit; trade credit market; liquidity-saving (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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