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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]


  • 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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361 news items

Belfast Telegraph

Belfast Telegraph
Fri, 22 May 2015 02:56:15 -0700

She told young savers in the Ballyhackamore Credit Union that she had an account of her own - she belongs to the London Mutual Credit Union. Camilla chatted with staff and members of the east Belfast lender before unveiling a plaque to commemorate her ...
Scottish Housing News
Fri, 15 May 2015 00:15:32 -0700

Churches Mutual Credit Union Key figures from the financial industry in Scotland today welcomed the arrival of a new Church-led player on the affordable credit landscape. At a breakfast meeting in Edinburgh ahead of tomorrow's opening of the Kirk's ...

The Guardian

The Guardian
Sun, 24 May 2015 11:38:03 -0700

Pensioners chant anti-austerity slogans during a protest in central Athens. Greece has spent the last four months wrangling with Brussels and the IMF following the election of the anti-austerity Syriza party in January. Photograph: Petros Giannakouris/AP.

The Cryptosphere

The Cryptosphere
Mon, 04 May 2015 09:01:04 -0700

What mediated these exchanges was not a piece of gold or paper money, but something intangible, like a sense of brotherhood or simple kindness in each person's willingness to give, receive and offer a gift in turn. Eventually this became a mutual ...


Sun, 17 May 2015 15:52:30 -0700

This has led the Duchess to open her own account at London Mutual Credit Union in Peckham, which also holds accounts for staff of the Royal Household. It's a rather extreme example, but it illustrates a business model that relies upon recruiting ...
The Sunday Times
Sat, 16 May 2015 13:48:45 -0700

He read out a letter from the Queen which praised Scotland's national church for the role it played during last year's independence referendum, formation of the new Churches' Mutual Credit Union and the new “decade of ministry” strategy to recruit new ...


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 ...
Tue, 11 Nov 2014 09:52:35 -0800

Nov. 11 (Bloomberg) -- 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 ...

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