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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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243 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 ...

Vicksburg Post

Vicksburg Post
Wed, 30 Sep 2015 07:48:45 -0700

... Banker; Robin Lea with State Farm; Sam Porter with Edward Jones; Kroger; City of Vicksburg; Jodi Sumerall with Merit Health; Janet Rantisi with Cannon Toyota; Rebecca Antwine with Antwine Accounting; Trustmark Bank; Mutual Credit Union; and Newks.

St. Louis Business Journal (blog)

St. Louis Business Journal (blog)
Tue, 08 Sep 2015 11:56:15 -0700

When Hinrichs was named president and CEO in 1974 of what was them Brentwood Mutual Credit Union, he was one of only two employees — and he was still in college, earning his degree in business administration from the University of Missouri-St. Louis.

Church Times

Church Times
Thu, 01 Oct 2015 16:03:45 -0700

His comments sparked the C of E-backed initiative #ToYourCredit, which resulted in the formation of the Churches Mutual Credit Union (CMCU). So far, the scheme has trained 150 credit champions to give information and advice to people struggling with ...

Financial Times

Financial Times
Fri, 18 Sep 2015 02:56:15 -0700

In 1934, a network of Swiss businesses decided to build a system of mutual credit allowing them to trade without relying wholly on the Swiss franc. The currency proved remarkably resilient, especially during periods of economic downturn. Although it ...

MoneyWeek (blog)

MoneyWeek (blog)
Tue, 29 Sep 2015 06:22:48 -0700

I interviewed Matt Ridley on his new book, The Evolution of Everything, this morning. We talked around all sorts of things – the video and the podcast will be out in a few days for you – but we spent a reasonable amount of time on the pointlessness of ...


Thu, 12 Feb 2015 05:45:29 -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 ...
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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