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Mutual Credit


The issue is about how money is created

Currently, we have two kinds of money, namely government money and bank money:

1. Government Money

Government money is interest-free notes and coins making up 3% of the money supply

2. Bank Money

The rest of the money supply is bank money, made up of loans, issued as debt at compounding interest by private, for-profit corporations called banks. This money is created out of nothing (there are not trillions of savings lying in a safe somewhere) on the strength of assets proffered by the borrower

Governments do not have money printing presses; they also borrow from banks at compounding interest, staking national assets as collateral. The largest, single expense of all governments is interest payments. Should they default, the nation gets asset-stripped as we have seen happen to many countries

So, in order to have money, we have to constantly pay compounding interest

Commodity money

Gold, Bitcoin, LETS, Community Currencies, etc., all have to be purchased with fiat currency, and then resold for fiat again in order to transact

So they are essentially a non-interest earning stores of value for diversifying, hedging, and speculation
Sometimes used for creating community, and keeping currency local

Gold- or commodity basket based currency is throttled by the rate of production of gold (or commodities), and so cannot dynamically adjust to the needs of economy. This shortage increases the value of the currency, encouraging hoarding, resulting in depressing economic activity. Some approaches propose demurrage to encourage spending

Hour money

There are many examples of hour money, which it is essentially money paid for hours of work, typically community service
This money can then be spent at participating theatres, for eg., when there are unoccupied seats available

Although not commercially scalable, it is an example of creating money without borrowing at interest

Consider these scenarios

Scenario one

In 1970, there was a six month bank strike in Ireland

Contrary to expectations, the economy did not suddenly fail, because payments by cheques and IOUs continued even with no banks to clear them, since the recipients know they were “good” for the amounts from past dealings

Scenario two

An egg farmer repaired his coop with nails and lumber paid for with an IOU for eggs
The hardware store owner then paid for bread with the IOU
And the baker in turn purchased eggs with it

Solution proposed


Banks put a lot of effort into risk management, and credit analysis of borrowers before approving loans
This is what creates trust in bank money

( Of course this does not hide the fact that banks lend many times more than the assets they have. These loans then become assets that are re-hypothecated all over again leading to a massive, perilous derivative overhang, causing financial asset inflation putting housing out of reach for most citizens )

So to garner trust in any new form of money, we need to trust the way new money is vetted

Mutual Credit

With Mutual Credit (MC), the creditor does due diligence of the debtor before acceping payment in the same way that credit is currently established between supply chain participants, between a wholesaler and retailer for example. In this way those being paid by the creditor in turn, trust the money

When to provide credit

  1. Analysing the customer, and granting credit before any transactions (as is common in industry)
  2. Considering ability to pay before individual transactions (in case this might be one of the only transactions done)
  3. Decide whether to accept payment after the customer has been invoiced (with the risk that the service / product has already been provided)

To assist members, the software provides a guide based on revenue, frequency of transactions, account balance, and demographic information in the profile. To bootstrap the money supply, an amount is granted to every new member, which creditors can accept at their discretion

Important to note that there are no interest payments draining the money supply


Members are of course free to broker between savers and borrowers at interest

For larger projects capital can be raised from savers with a prospectus, as normal. Part of the capital can also be covered by asking contractors and vendors to accept MCs as (part) payment, on the strength of the future production from project (electricity, milling, etc.)


These ideas are more eruditely explained by:

  • E.C.Regal
  • Thomas Greco

And this blog (pls note the links in the footer)


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