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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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265233 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.

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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

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An explanation of mutual credit in the context of Modern Monetary Theory and a critique of the state. Continued discussion of this video: http://youtu.be/uun...

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

The Money Fix - A Documentary for Monetary Reform

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The Credit Union Movement: A Historical Portrait (2002)

Not for profit, not for charity, but for service. A credit union history piece made possible by CUNA Mutual Group. Narrated by Edward Herrmann. Archival foot...

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265233 videos foundNext > 

6 news items

The Real News Network

The Real News Network
Sun, 26 Oct 2014 05:57:02 -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.

BBC News

BBC News
Wed, 22 Oct 2014 03:51:55 -0700

... down for a payday loan should be pointed towards free, impartial debt advice to help them address their money problems," said Gillian Guy, chief executive of Citizens Advice. Lakshman Chandrasekera is chief executive of the London Mutual Credit ...
 
KQED (blog)
Thu, 09 Oct 2014 13:48:45 -0700

And suddenly she went from a double income to a single income and the bills start kind of piling up and she goes into some amount of debt. One of these debts is a Washington Mutual credit card debt and that's the one that Aaron and Brandon end up buying.

FT Adviser

FT Adviser
Wed, 22 Oct 2014 06:41:15 -0700

In a speech given at a reception hosted at Clarence House to mark international credit union day, the Duchess, who has been a member of the London Mutual Credit Union in Peckham, London, since 2013, said: “I believe credit unions can change the way ...
 
NeighborNewspapers.com
Tue, 30 Sep 2014 07:44:17 -0700

The 2014 Global Women's Initiative, set for Oct. 8 at the Georgia Aquarium in downtown Atlanta, will convene international thought leaders to explore “Women as the Competitive Advantage: Redefining a Workplace that Works for Women and Men.” A second ...

The Canberra Times

The Canberra Times
Fri, 24 Oct 2014 19:03:45 -0700

Transport Mutual Credit Union, for instance, is currently offering a new car loan from 6.79 per cent. Ryan suggests using comparison sites to scrutinise loan fees and charges as well as rates. "What you really want is either a no-fee or a very low fee ...
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