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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. Local exchange trading systems (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, especially if it is run with unsecured debt, is the possibility of people exploiting the system by running up a large negative balance and not repaying it. This problem can be addressed by caps on negative balance that can be raised as balances are paid off. The problem can also be addressed by a using a well-worded membership agreement with clauses that specify members remain fully liable for all negative balances and reasonable time limits for calling in stagnant negative balances. Another solution is limiting the system to a small, close-knit community based on trust, where the community holds people accountable. Perhaps for this reason,[citation needed] most mutual credit systems are small, under 2000 members.[citation needed].

Examples and types of systems[edit]

The local exchange trading system (LETS), the Community Exchange System, the Cincinnati Time Store and, (in the United Kingdom), the Echo business trading network 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]

References[edit]

  • T.H. Greco. "Money: understanding and creating alternatives to legal tender". White River Junction, Vt: Chelsea Green Publishing, 2001. E-book excerpted version

Original courtesy of Wikipedia: http://en.wikipedia.org/wiki/Mutual_credit — Please support Wikipedia.
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281412 videos foundNext > 

Prof Bernard Lietaer On the philosophy behind mutual credit systems

Recording date: 23. April 2014 Location: School of Business and Economics, Maastricht University Speaker: Prof. Bernard Lietaer Title: In conversation What i...

Favabank Mutual Credit System Explained.wmv

An introduction to Mutual Credit Systems and how they can facilitate more complex barter arrangements.

Creating a LETS Mutual Credit System with Ripple

I demonstrate how to set up a very basic LETS mutual credit-style system using the Ripple protocol. Learn more about mutual credit here: https://en.wikipedia...

London Mutual Credit Union

Mutual Credit

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Discribed how Mutual Credit works in Ripple, p2p trust nework.

Member share their reasons for joining the London Mutual Credit Union

Members share their reasons for joining the London Mutual Credit Union.

What's wrong with using credit cards if we pay them off?

Josh in Indianapolis uses a credit card for the rewards and pays it off every month. Is it really that bad? Dave answers and gives his reasons. ☆ FREE money ...

281412 videos foundNext > 

223 news items

 
Bloomberg
Tue, 11 Nov 2014 09:52:35 -0800

Old Mutual Plc, the largest insurer in Africa, had its credit rating lowered one level to Baa3 by Moody's Investors Service as a result of the weakening credit worthiness of South Africa and its banking system. The downgrade reflects the insurer's ...

The Guardian

The Guardian
Fri, 14 Nov 2014 23:00:24 -0800

The Duchess of Cornwall recently revealed she has opened an account with London Mutual Credit Union, which provides services to anyone who lives or works in the boroughs of Southwark, Lambeth, Westminster or Camden, and even has its own ...

The Guardian

The Guardian
Wed, 19 Nov 2014 03:48:45 -0800

Some, such as London Mutual Credit Union, also offer far cheaper versions of payday loans. There is already an NHS credit union based in Glasgow, which was set up in 1998 and caters for NHS employees and their family members in Scotland and the north ...

Musalman Times

Musalman Times
Fri, 21 Nov 2014 16:25:58 -0800

Payday Loans Jacksonville gets you cash as little as 1 hour. Remember also to cut down or lay-off some employment status once again. Competitive health insurance policies through St. What benefits are associated with this form of education. Students ...
 
Seeking Alpha (registration)
Wed, 12 Nov 2014 16:43:37 -0800

And if you look at Washington Mutual's credit performance and they made the mistake are branching into Florida, branching into Arizona, and even with all of that their multi-family performed extremely well. I think it is really just due to the nature ...

The Real News Network

The Real News Network
Sun, 26 Oct 2014 05:53:53 -0700

Costas Lapavitsas is a professor in economics at the University of London School of Oriental and African Studies. He teaches the political economy of finance, and he's a regular columnist for The Guardian.

The Independent (blog)

The Independent (blog)
Mon, 23 Jun 2014 03:12:31 -0700

Now comes news that the Churches' Mutual Credit Union (CMCU), will be launched on 1 October. It will initially be aimed at members of the clergy, before being made available to all of the “active members” of the Church of England at 16,000 churches as ...
 
Utne Reader Online
Mon, 25 Feb 2013 12:27:39 -0800

Find out how Ireland initiated a mutual credit system to their advantage during a financial crises in the 1960s to 1970s in this excerpt from chapter 6, “Strategies for Banking.” Of all the many ways of organizing banking, the worst is the one we have ...
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