Failures on the market and market failures: a complementary currency for bankruptcy procedures

Abstract

One of the most widespread implications of the Great Financial Crisis has been the increase in bankruptcies across advanced economies. The traditional approach to the problem of insolvencies is constrained by deeply ingrained concepts of money and credit and by the institutions in which those concepts are embodied, according to which the only way to discharge a debt is a payment in money. This paper deals with a peculiar project elaborated within the Italian Ministry of Justice to address the problem of the growing amount of uncollectibles involved in bankruptcy procedures. The project entails a new form of articulation between money and credit, which overturns the traditional logic of liquidation by transforming creditors of bankruptcy procedures, passively waiting to be paid, into active operators, capable of sustaining demand. This goal is pursued by converting part of their credits into purchasing power that can be immediately spent in the auctions for the assets of bankrupt companies, thereby increasing the efficiency of bankruptcy procedures, accelerating the reallocation of assets and maximising the satisfaction of creditors. The projects may be seen as a complementary currency characterised by a functional, and not by a territorial, delimitation. It incorporates some of the features that have been recently experimented with, with varying degree of success, within both the official and alternative monetary systems: endogenous money creation, targeted loans and demurrage. The present paper aims at illustrating the theoretical underpinnings of the project and its implication for the question of devising an alternative to current financial institutions.