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Mutual credit is a type of alternative currency in which the currency used in a transaction can be created at the time of the transaction. LETS are mutual credit systems. Typically this involves keeping track of each individual's credit or debit balance. Although the effect is like a loan, no interest is charged, and since mutual credit allows for trading and cancelling balances with others, debts can be paid off indirectly. The "IOU" is a common example of this.

Advantages and disadvantages[edit]

One economic advantage of mutual credit is that the currency supply is self-regulating—the money supply expands and contracts as needed, without any managing authority. The availability of interest-free loans is a great advantage to members of the system.

One downside of mutual credit, as with any form of credit, is the possibility of exploiting the system by running up a negative balance and then leaving.[citation needed] This problem is often addressed by caps on negative balance which can be raised as balances are paid off, or by limiting the system to a small, close-knit community based on trust, where the community holds people accountable. For this reason,[citation needed] most mutual credit systems are small (under 2000 members)[citation needed].

Examples and types of systems[edit]

LETS, the Community Exchange System and the Cincinnati Time Store are examples of mutual credit systems. A number of different mutual credit systems have been proposed. Mutual credit can be combined with a number of features of alternative currency systems. For example, it is usually (but does not need to be) a local currency, and it can have a demurrage fee for the holding of balances.

See also[edit]


  • T.H. Greco. "Money: understanding and creating alternatives to legal tender". White River Junction, Vt: Chelsea Green Publishing, 2001.
  • moneyfix.org

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4 news items

The Guardian

The Guardian
Fri, 04 Apr 2014 23:00:40 -0700

Meanwhile, Police Credit Union's loan rates range from just 4.2% up to 25% APR, while the Transport Credit Union quotes rates of 7.9%-14.9% APR. London Mutual Credit Union (cuok.co.uk) is offering short-term loans in a bid to beat Wonga. It charges £12 ...

Wall Street Journal

Wall Street Journal
Tue, 08 Apr 2014 12:22:25 -0700

When growth is stable, mutual credit institutions get cheap credit to small borrowers, sometimes below market rates. But on rainy days, these banks often earn too little to stand on their own feet. The German Landesbanken returned an average -0.8% on ...
Broker News Australia
Tue, 08 Apr 2014 15:57:34 -0700

While Firstmac understands APRA views the ownership limitation as a strength – it requires all substantial shareholders to be able to demonstrate a long-term commitment and ability to contribute additional capital – this approach rules out mutual ...
Daily Liberal
Mon, 07 Apr 2014 11:05:57 -0700

... or at WIN's - Swift Street - 6845 1606 - with the manager Alison Conn or you can give it directly to myself or Sue Smith or you can direct depositCommunity Mutual Credit UnionBSB - 932000Acc - Dubbo Wig Library Volunteers IncorporatedAcc No - 721142.".

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