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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
  • The Money Fix - documentary

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.

535 news items

Daily Liberal

Daily Liberal
Fri, 29 Apr 2016 11:11:15 -0700

Donations to the William Ferguson Memorial Trust Fund can be made at Orana Mutual Credit Union. "It's a lot of money but a dollar is a dollar, if anyone can contribute that would be great," Cr Towney said. William Ferguson died of hypertensive heart ...

The Guardian

The Guardian
Fri, 22 Apr 2016 03:04:53 -0700

At the same time, a global mutual credit movement of Local Exchange Trading Systems (LETS) and Time Banks is generating value from community resources other than cash. Members exchange their skills for time instead of money, receiving credits for each ...

The Patriot Ledger

The Patriot Ledger
Fri, 22 Apr 2016 14:45:39 -0700

Palmucci particularly took issue with the mayor giving Quincy Mutual credit for investments it had made to support a now-defunct project proposed by Street-Workers, the city's former master development partner. Koch said Quincy Mutual deserves praise ...

CryptoCoinsNews

CryptoCoinsNews
Sun, 24 Apr 2016 06:45:25 -0700

Time Banks and the Local Exchange Trading Systems (LETS), a global mutual credit union, have created value from community resources rather than cash. Exchange members trade skills for time instead of money. They get credits for every hour they ...

Hivisasa.com

Hivisasa.com
Fri, 29 Apr 2016 02:33:45 -0700

Local currencies have in the past surfaced in Mombasa, where the local residents developed Bangla-Pesa to offer local business communities an avenue to create their own tailor-made mutual credit and clearing (barter exchange) system. This has enabled ...

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 ...
 
Nigeria Today
Wed, 27 Apr 2016 20:22:30 -0700

The Economic Community of West African States Staff Mutual Credit Cooperative Union (ESMCCU) on Monday held its annual general meeting (AGM) where it declared 22 per cent increment in its capital base. The President of ESMCCU, Dr. Alfred Braimah ...

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 ...
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