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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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Recording date: 23. April 2014 Location: School of Business and Economics, Maastricht University Speaker: Prof. Bernard Lietaer Title: In conversation What i...

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220 news items

Financial Times

Financial Times
Tue, 16 Dec 2014 11:30:00 -0800

The Churches' Mutual Credit Union plans initially to offer savings accounts and loans from February next year, after receiving formal authorisation from regulators on Tuesday. Canon Antony MacRow-Wood, the union's president, said one of the aims is to ...


Wed, 17 Dec 2014 07:56:15 -0800

Fair returns to savers, fair interest rates on loans and the aspiration to be a flagship credit union are among the aims of the Churches' Mutual Credit Union Ltd (CMCU) which has received formal authorisation from the regulatory authorities today. The ...
Mon, 15 Dec 2014 16:11:15 -0800

The World Bank and Real Estate Development Association of Nigeria (REDAN) have concluded arrangements for the setting up of Mutual Credit Guarantee Scheme (MCGS) as part of efforts at “fast-tracking housing delivery in the country. To this end, the ...

Financial Times

Financial Times
Thu, 11 Dec 2014 16:00:00 -0800

The Churches' Mutual Credit Union is set to get regulatory approval before the end of the year, City Insider gathers. About time. The church has wanted to create its own credit union — a mutual not-for-profit savings and loans institution — since 2008.
Wed, 17 Dec 2014 00:59:56 -0800

The Churches' Mutual Credit Union plans initially to offer savings accounts and loans from February next year, after receiving formal authorisation from regulators on Tuesday, writes the Financial Times. Canon Antony MacRow-Wood, the union's president, ...


Fri, 12 Dec 2014 20:46:20 -0800

Ripple is a mutual credit system primarily designed for transacting other currencies using blockchain technology. The XRP price simply reflects the market valuation of this technology with some speculation thrown in. Talk of pre-mining is somewhat ...

The Guardian

The Guardian
Wed, 19 Nov 2014 03:53:49 -0800

Some, such as London Mutual Credit Union, also offer far cheaper versions of payday loans. There is already an NHS credit union based in Glasgow, which was set up in 1998 and caters for NHS employees and their family members in Scotland and the north ...
Tue, 11 Nov 2014 09:52:35 -0800

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 reflects the insurer's ...

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