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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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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

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...

The Money Fix - A Documentary for Monetary Reform

Money is just information, a way we measure what we trade, nothing of value in itself. And we can make it ourselves, to work as a complement to conventional ...

Mutual Credit in peer to peer network

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

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...

Switching from banks to London Mutual Credit Union

London Mutual Credit Union is the financial institution that offers supports for local people in London about their financial problems.

Mutual Savings Credit Union Auto Quest 2014

Let Mutual Savings help navigate you to the lowest rates during Auto Quest!

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2 news items

Daily Mail

Daily Mail
Wed, 15 Oct 2014 14:59:55 -0700

The Duchess of Cornwall will today issue an impassioned plea to the nation to support credit unions as an alternative to the payday loan industry. Camilla, who herself uses a local banking co-operative, is expected to tell industry leaders: '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.
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