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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

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248174 videos foundNext > 

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 is ...

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: ...

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: ...

What is Mutual Credit?

An explanation of kingstoncommunity.ca 's mutual credit system.

London Mutual Credit Union

Member share their reasons for joining the London Mutual Credit Union

Members share their reasons for joining the London Mutual Credit Union.

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 footage ...

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.

248174 videos foundNext > 

262 news items

Sonoma Valley Sun

Sonoma Valley Sun
Tue, 24 Nov 2015 16:11:15 -0800

This type of system is called “mutual credit” or “cooperative money;” it literally circulates in the community, tightening the web of connections, and passing around a little of the profit, “just for fun”. It may sound like a small game, but it's ...

Vicksburg Post

Vicksburg Post
Fri, 13 Nov 2015 13:56:15 -0800

As chairman of Mutual Credit Union's supervisory committee, McKinnie oversees a committee that reviews the credit union's annual audit and ensured the officers and employees follow regulations set by the national credit union association. “It's ...
Vicksburg Post
Mon, 02 Nov 2015 07:00:00 -0800

4International Credit Union Day was celebrated by Mutual Credit Union with a “People Helping People” theme and ventured into the community paying for customer's groceries. We're certain that action was a much-welcomed surprise for many who had their ...

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
Sat, 31 Oct 2015 06:52:30 -0700

Special guest speakers Tim Reeves, publisher at The Vicksburg Post; David Campbell, assistant superintendent of the Vicksburg Warren School District and Susan Mandarino, vice president of marketing at Mutual Credit Union spoke about their interactions ...

Co-operative News

Co-operative News
Mon, 16 Nov 2015 02:07:30 -0800

The ties with Wonga were eventually cut and the Church established its own credit union, the Churches' Mutual Credit Union Ltd (CMCU). The Tynedale Community Bank has support across the political parties in the area. As well as Mr Opperman, the Labour ...
Lexology (registration)
Fri, 06 Nov 2015 04:34:15 -0800

Recently, class plaintiffs moved for the preliminary approval of a $1.865 billion settlement of the Credit Default Swap Antitrust Litigation. In this case the plaintiffs alleged that, in and around 2008 and 2009, a number of financial institutions ...

Co-operative News

Co-operative News
Thu, 15 Oct 2015 03:32:03 -0700

Lance Sergeant Johnson Beharry joined London Mutual Credit Union, as one of the first under the scheme. He said: “It is often difficult for people in the armed forces to gain access to financial services, especially those serving overseas who have ...

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