Credit clearing is the practice according to which a small group of banks need to make many payments to each other, of adding up the payments and cancelling them out before
settling the remainder. While
clearing is about waiting for the payment to go through, credit clearing is about cancelling out a payment with one coming in the opposite direction.
This process originated between all the banks in London, who would send their checks to the
clearing house at the end of each day. After the calculations were made there would be a single payment to or from each bank.
In 21st century with
spreadsheets
A spreadsheet is a computer application for computation, organization, analysis and storage of data in tabular form. Spreadsheets were developed as computerized analogs of paper accounting worksheets. The program operates on data entered in cel ...
and
blockchain
A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, a ...
s, this process tends to be fully automated.
The mechanism is used not only by banks, but in any
multilateral exchange situation.
Many
complementary currencies work this way, calling it
mutual credit
"Mutual credit" (sometimes called "multilateral barter" or "credit clearing") is a term mostly used in the field of complementary currencies to describe a common, usually small-scale, endogenous money system.
The term implies that creditors and ...
.
Banking technology
{{finance-stub