"Mutual credit" (sometimes called "
multilateral barter" or "
credit clearing") is a term mostly used in the field of
complementary currencies to describe a common, usually small-scale,
endogenous money
Endogenous money is an economy’s supply of money that is determined endogenously—that is, as a result of the interactions of other economic variables, rather than exogenously (autonomously) by an external authority such as a central bank.
...
system.
In a mutual credit system,
creditors
A creditor or lender is a Party (law), party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided ...
and
debtors are the same people lending to each other. Transactions are recorded on a
ledger
A ledger is a book or collection of accounts in which accounting transactions are recorded. Each account has:
* an opening or brought-forward balance;
*a list of transactions, each recorded as either a debit or credit in separate columns (usu ...
, and a given individual or firm's balance is the sum of all their transactions positive or negative.
Economics
Once a common unit of account is agreed upon, and the extent to which members can draw credit is limited, a mutual credit system resembles a money system in which currency is created and destroyed with every transaction.
Meaning of 'mutual'
Practitioners and theoreticians in the complementary currency movement do not use the term in a consistent way. It could mean that
* creditors and debts are the same people at different times
* default risk is shared between all members of the circle (not necessarily distributed equally or even in a managed way)
* credit allocation is decided in a participative forum.
Ripple has also been described as mutual credit, even though credit is extended unilaterally (from one account to another), and might not be reciprocated.
Examples and types of systems
Social institutions described as mutual credit systems include
trade exchange
An association of businesses formed for the purpose of trading with one another, using mutual credit to keep account. Typically the lead business will run the exchange, performing a brokering services and providing (or renting) an online marketpl ...
s,
local exchange trading systems, and
timebanking
In economics, a time-based currency is an alternative currency or exchange system where the unit of account is the person-hour or some other time unit. Some time-based currencies value everyone's contributions equally: one hour equals one servi ...
associations, each with a number of offshoots and variations, and their own understanding of what mutual credit means.
See also
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References
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Mutualism (movement)
Alternative currencies
Anarchist theory
Monetary reform