Mutual credit

“It only requires that we each take control of our own credit and give it to those individuals and businesses that merit it and withhold it from those that do not.” - Thomas Greco

It’s a means of trading, of exchange, that doesn’t require conventional money, doesn’t incur interest and doesn’t involve banks. It’s based on networks of businesses, traders and individuals who get to know and trust each other in a geographical area or business sector. Each member gets an account. They go into a directory so that suppliers and customers can find each other. When a purchase is made, the buyer’s account goes into debit, and the seller’s account goes into the same amount of credit. But these are just numbers in an account - information, not money that can be hoarded. There’s a limit to how far you can go into credit or debit – and that’s basically it.

Mutual credit is not barter. You don’t have to find someone who has what you want and wants what you have – you just get credit or debit in your account. It’s not a swap. You can then use your credits to trade with anyone else in the network.

There are similarities with local currencies. The main differences (as outlined by Tom Greco) are:

1. Mutual credit involves a trusted network of traders; local currencies don’t.
2. Local currencies are bought and redeemed for conventional, bank-issued money; mutual credit isn't.
3. Local currencies can still be hoarded and made scarce; mutual credit can’t – it’s just a means of exchange.

It can be argued that all gift economies are actually mutual credit, because everyone is giving and receiving and a balance is struck, even without formal accounting. However mutual credit requires a unit of account and a ledger before it becomes money-like.

The idea is very useful and translatable into different cultures and realms. Anthropologists have found scattered examples of mutual credit like ledgers in many places. We find instances of it throughout the financial system - wherever there are assets changing hands in both directions between multiple parties, and immediate settlement isn't needed, for example in interbank clearing.

In the 19th century, William Greene, Lysander Spooner and Pierre-Joseph Proudhon championed mutual credit and mutual banking in the US.

During the 1930s depression, various scrip currencies were used, and the mutual credit Wir Bank was born in Switzerland.

After the Second World War, at the Bretton Woods conference, John Maynard Keynes proposed a mutual credit scheme between nations – the International Clearing Union – but it was rejected.

The large-scale, for-profit barter industry (actually mutual credit) has developed since the War, overseen by the International Reciprocal Trade Association (IRTA), comprising 400,000 businesses and trades valued at $14 billion in 2019.

LETS (and time banks) are community-based, non-commercial exchanges in which local people exchange favours and hours of work. However, LETS schemes were usually comprised of individuals rather than businesses, and it's hard for individuals to obtain credits unless the company they work for is in a scheme and pays some wages via credits. Mutual credit networks can involve individuals, but for real economic impact, they have to be based on networks of businesses.

On the island of Sardinia in the Mediterranean, a group of arts graduates launched a mutual credit scheme called Sardex in 2009 – after the financial crash when money was very scarce. However, skills, tools and infrastructure were the same as before the crash, and so Sardex allowed businesses to trade without money. There are now 4000 businesses involved, with trades approaching 50 million euros per year. Here’s an FT article with more information about Sardex.

Grassroots Economics are building mutual credit networks in poor areas of cities in Kenya. They currently have over 50,000 participating small businesses, with thousands joining each week. We interview their director here.

The Credit Commons is a protocol to enable local currencies, or credits to be traded in other groups. It uses mutual credit because instead of seeing the currency as a commodity with a price, the currency is a credit obligation intended t be repaid with the issuers' goods and services. We interview the designer, Matthew Slater, here.

• Mutual credit provides a parallel purchasing / accounting system that means businesses don't have to rely entirely on pounds, dollars etc. This insures them against cashflow problems and wider economic downturns.
• Networks of businesses give each other interest-free credit (credit is difficult for small businesses to obtain from banks, and expensive via credit cards).
• The network provides new leads / customers for members.
• Businesses can pay suppliers without money, and customers can buy from them even if they have no money.
• Allows businesses to sell surplus stock / spare capacity.

• Unlike conventional money, mutual credit is not an exchange medium that can be sucked out of communities and accumulated in tax havens.
• Builds trusted networks of businesses, which can improve and increase community connections, interactions and trust.
• A community with a strong mutual credit network will have more protection against wider economic crashes. Trade can continue even when money is scarce.
• A local mutual credit network of committed traders can help start new small businesses, as gaps in the local economy are identified.

• Conventional money is scarce; mutual credit is not – it’s available to any network members who want to trade with each other. To paraphrase Alan Watts: to say that it’s not possible to trade because of a lack of money is like saying that it’s not possible to build a house because of a lack of centimetres.
• This means that mutual credit enables trade in areas of extreme poverty.
• Mutual credit is a means of exchange, but not a store of value – it can’t be accumulated and hoarded by billionaires.
• Because there’s no interest to be paid, and no impetus to hoard, there is no ‘growth imperative’ that causes overconsumption and damages nature.
• Provides a refreshing alternative to debt-issued, bank-controlled money.
• In a well-run mutual credit system, inflation can’t happen.
• Mutual credit has no divisive ideology attached. It’s just a practical tool that has multiple benefits, whatever your political position.

Like any financial institution, its not something you can practice on your own, and monetary activists have found it surprisingly difficult to seed and nurture mutual credit systems where they live. The reason is perhaps because they are doing it the wrong way around. An accounting system does not create the possibility for people to exchange, it merely formalises exchange which is already going on, or not going on. Failed projects can raise consciousness and build community, but they can also put people off the topic entirely, especially people who put more in than they got out.

What you can do on a personal level is demonetise your private exchanges, if not also your professional ones. That means instead of asking for money payment, ask what your client can actually do for you or give you. Treat is like a game or a challenge, leave debts open, uncollected, or overpaid and requiring a counter payment! Where bilateral exchange isn't possible, try to set up loops where A is a client of B is a client C is a client of A. If you can get to ten or 15 people constantly doing this, maybe it will be time to formalise the system!

Otherwise, look for initiatives you like and volunteer them in the ways that they need. There might be a LETS or a time bank in your area - ask around because the maps are all out of date. There are also non-local projects with wider ambitions which might need you. Here are some of our favourites.

*Humans United in Mutual Aid Networks(USA) imagine local economies of care and exchange, networked together.

*Community Exchange Systems provides a software platform for groups across the world, but racing against time to modernise its software

*Mutual Credit Services is building a special type of mutual credit system for business networks that helps members with cashflow by cancelling out incoming invoices with outgoing ones leaving a much smaller amount to manage. They are working with Liverpool local council to implement this city-wide. - Contact us too if you think you might like to volunteer with MCS.

Finally everyone can learn more about credit clearing and mutual credit: we recommend Thomas Greco’s book, _the End of Money and the Future of Civilisation;_ or you can watch some of our interviews with people working in / interested in mutual credit.

• Contact us if you're part of a business network - you can talk with MCS with a view to setting up a local trade / mutual credit club. This also applies if you're part of / associated with a local authority, social enterprise or any other group that might want to host a network.

This topic belongs to the section Economy & finance. You can ask questions or add information on the corresponding Forum section.

• International Clearing Union - mutual credit between nations - proposed (unsuccessfully) by John Maynard Keynes at the Bretton Woods meeting in 1944
• International Reciprocal Trade Association - trade body for commercial barter (actually mutual credit) organisations
• Wir Bank - info on the mutual credit Wir Bank from Tom Greco
• Beyond Money - Thomas Greco's site: 'devoted to the liberation of money and credit, and the restoration of the commons'
• Community Exchange System - provides the means for communities to trade and exchange their goods and services, both locally and remotely
• Community Forge - providing open source platforms for mutual credit schemes

• Collaborative finance
• Credit clearing
• Credit commons
• Commoning
• Commons economy
• Community
• Cryptocurrencies
• Local currencies
• ROSCAs — rotating savings and credit associations
• Self-employment
• Small is beautiful
• Use-credit obligations

• Matthew Slater of CreditCommons.org
• Michel Rauchs
• Dil Green of Mutual Credit Services