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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.
This page uses Creative Commons Licensed content from Wikipedia. A portion of the proceeds from advertising on Digplanet goes to supporting Wikipedia.

526 news items

Triangle Business Journal

Triangle Business Journal
Wed, 30 Sep 2015 06:43:15 -0700

Lawrence says he plans to spend the next few months conducting a comprehensive assessment of the company to see where the opportunities lie. Michael Lawrence, incoming president and CEO of North Carolina Mutual Life Insurance Co. Enlarge. Michael ...

Co-operative News

Co-operative News
Thu, 15 Oct 2015 03:32:03 -0700

Lance Sergeant Johnson Beharry joined London Mutual Credit Union, as one of the first under the scheme. He said: “It is often difficult for people in the armed forces to gain access to financial services, especially those serving overseas who have ...

Utne Reader Online

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 ...

Anglicannews

Anglicannews
Wed, 11 Feb 2015 07:00:00 -0800

The Archbishop of Canterbury's drive to promote access to responsible credit and savings receives a major boost today with the launch of the Churches Mutual Credit Union Ltd. (CMCU). The Most Rev Justin Welby joined the Moderator of the General ...
 
Moodys.com (press release) (subscription)
Mon, 21 Dec 2015 10:44:16 -0800

While OMW was not impacted by this rating action, Moody's noted that continued deterioration in the South African sovereign rating, and by extension, Old Mutual's credit profile, could place downward pressure on OMW's credit profile and IFS rating due ...

GreenBiz

GreenBiz
Mon, 07 Dec 2015 01:22:30 -0800

These systems, which could also be called community-based mutual credit systems, are consistent with biological design principles in all the ways bank credit is not. They are bottom-up, locally attuned and adapted, decentralized, diverse, self ...

THE BUSINESS TIMES

THE BUSINESS TIMES
Tue, 17 Mar 2015 18:58:36 -0700

Michael Lim, chairman of SAC, said: "This mutual credit recognition is a testament of the robustness of the Singapore QP and will serve as a strong foundation from which the CA Program and Singapore QP candidates can leverage on, in their journey ...

Telegraph.co.uk

Telegraph.co.uk
Sat, 11 Jan 2014 23:31:12 -0800

Mr Duncan Smith himself joined the London Mutual Credit Union last month, while membership across the UK is growing at its fastest in a decade. Credit unions, which operate like mutuals in lending out members' money, expect to gain 20pc more members ...
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