Grassroots Bonds: Financing by the People, for the People

Grassroots currencies turn mutual trust into liquidity: a grassroots coin is a unit of its issuer's debt, backed by the issuer's goods and services, which the issuer must redeem, 1-for-1, against any coin they hold; liquidity arises from mutual credit lines, formed by the voluntary exchange of coins among persons who trust each other. As coins are redeemable 1-for-1, the exchange must be 1-for-1 as well, lest prompt redemption after it leave one party with undue profit. Thus, grassroots coins are incongruent with interest-bearing credit. Here, we extend grassroots currencies to include also grassroots bonds, units of their issuer's debt due at a later date. Upon maturity, the bearer of the bond may redeem it against a coin of the issuer, so liquid coins can be lent against interest-bearing bonds. We specify bonds by adding Date and Escrow clauses to the social contract of grassroots currencies: the contract enforces the redemption of a bond when it is mature according to the date stated by the issuer, who undertakes to keep it current. We show that the voluntary swap of coins and bonds can realise the basic financial instruments: loans, sale of debt, and forward contracts, and, with an escrow agent, loans with payment schedules, options, collateral, guarantees, insurance, credit default swaps, letters of credit, and credit lines. We extend the liquidity ratios of corporate finance to bonds, with maturity as asset class, and prove that a community clears its debts by redemptions exactly when no member owes more than they hold, and that it does so without coordination once dates advance and persons act on their rights. Grassroots currencies that include coins and bonds are implemented in GLP, a concurrent logic programming language running on Dart, as a program derived from the contract and demonstrated by a village market of six agents and an escrow agent.