What is "backing"?
Backing [a Common Good Community] is a promise, made by supportive members and member organizations one year at a time, to buy additional Common Good credit in the event of a cash crunch or termination of the Common Good Community. These promises give you the security of knowing your Common Good credit is backed by Dollars held in the Dollar Pool and/or by plenty of credible promises, helping prevent the sort of panic that can lead to a cash crunch. Backing Promises are a key component of taking responsibility and control of our own local economy.
The promise you make in the Common Good Agreement is also a sort of Backing Promise. When you pay someone more than is in your Common Good account balance, that extra Common Good credit is backed by your promise to bring your balance back up to zero or more within 30 days.
What is a cash crunch?
As a Common Good Community you and other members decide together when to spend, grant, lend, and/or invest some of the US Dollars members have put into their Common Good accounts, which are held in a Community Fund Dollar Pool in a bank.
Your Common Good Community must take care to keep enough money in the Community Dollar Pool to cover requests by members to move funds to their bank account, trading some of their Common Good credit for US Dollars.
If you and your community misjudge and members transfer large amounts, all at once, from their Common Good account to their bank account and/or transfer much less than usual from their bank account to their Common Good account, the amount in the community’s Dollar Pool becomes less and less. Then at some point when a member requests a transfer to their bank account, there might not be enough Dollars left to complete that request until more US Dollars come in. We call this a cash crunch.
Backing Promises from members assure that additional Dollars are always available within 7 days for participants to transfer to their bank account, allowing for continued smooth operations even in the unlikely event of a cash crunch.
What happens if the amount of backing goes down too far?
Whatever permanent expenditures your Common Good Community makes (such as grants, social dividends, etc.), beyond whatever donations it has received, that’s how much is not backed by Dollars in the Dollar Pool, so that’s how much needs to be backed by Backing Promises.
If you make such permanent expenditures together, then if someday members of your Common Good Community reduce their backing to the point your Common Good credit is no longer adequately backed, the most likely result is that your Common Good System would evolve or roll over into some other system. But if your Common Good Community ends, without any replacement, here’s how that would go:
The amount of backing can only go down at first by about 0.3% per day, because Backing Promises do not end all at the same time. It would take a whole year for the backing to go to zero, if every single participant decided not to renew their commitment. This pace would give you and your Common Good Community about seven and a half months to search for solutions before the system would need to be shut down.
For example, suppose you and your Common Good Community follow the recommended policy and make no permanent expenditures beyond what would be 200% backed by members. And suppose you (collectively) choose to set 125% as the absolute minimum backing. In the event your collective backing commitment declines from 200% to a mere 125%, your Backing Promise becomes a charitable contribution. All your other Common Good credit would then be exchanged automatically for Dollars (for example by transferring it to your bank account). Any small balance left in the Dollar Pool (because of more than 100% backing) would then be returned to the backer(s) who gave the most. And the system would end.
As long as most participants honor their Backing Promise, only the amount you choose for your Backing Promise is at risk.