About mutual credit

Mutual credit is a system of accounting for exchange within a trusted network. Simply keeping score of exchanges, usually in units denominated in the national currency, means that actual currency does not need to change hands in order for people and businesses to trade. Mutually-agreed balance limits make it possible to manage and share risk.


The Basics

Participating businesses in a mutual credit scheme get an account, set at zero. When they sell, their account goes up, and when they buy, their account goes down. This is just numbers in an account, not money. There are limits to how far accounts can go into the positive or negative. That’s it, as far as the basics are concerned.

So if a farmer supplies a sack of potatoes to a local restaurant, the farm’s account goes up by (say) ten units, and the restaurant’s account goes down by the same amount. If they both started at zero, the farmer’s account will now be +10 units, and the restaurant’s account will be -10. Then if a plumber has a meal in the restaurant, the plumber’s account might go down by 20 units, and the restaurant’s account will go up by the same amount. The restaurant’s account is now +10 units – and so on.

If businesses already know and trade with each other, they may not need a directory, but if they do, they add their details, including the goods and services they’re offering and the goods and services they want – so that customers can find them, and they can find suppliers.

Accounts are are kept with units usually equivalent to the national currency. This is just to keep things simple – no actual money changes hands. Mutual credit is just a record of who’s done what.

Yes. The Wir Bank was born in Switzerland in the 1930s, and turns over billions of Euros worth of trade per year in mutual credit.

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.

Sardex, on the island of Sardinia involves 4000 businesses, 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 Kenya. They currently have over 50,000 participating small businesses, with thousands joining each month.

Quipu Market is a new scheme in cities in Colombia.

And there are many more. The difference now is that we have the Credit Commons Protocol to connect schemes together into a global trading network.

Clubs are groups of businesses that already trade with each other, (or that could switch suppliers and get new customers so that could happen) that decide to trade with each other using mutual credit. Active trading loops or circles need to exist, so that popular businesses don’t get stuck at their credit limit with no-one to buy from, or that other businesses end up at their debit limit with no-one to sell to. Trade needs to flow in loops around the community. They can be in a geographical area – so there could be a club in your town – or they can be clubs of interest, for example in a particular industry, with members in different parts of the country, or even in different countries.

Rules, credit limits etc. can be decided democratically within each club.

A small transaction fee could provide an income for a club convener – obviously this income will rise, the bigger and more active the club becomes.

Clubs can plug into the global Credit Commons, so that members can trade with members of other clubs, anywhere.

Trade credit involves ‘credit clearing’, but a trade credit club can also include mutual credit.

Imagine a scenario in which business A owes £1000 to business B; business B owes £1000 to business C; and business C owes £1000 to business A. Can you see that if they realised that there was a circle of debt, they would also realise that they could cancel those debts immediately, and no-one would owe anyone else anything?

The problem is that businesses can’t see those debt circles, which means that often they’ll be struggling to repay debts that they don’t actually need to repay. They might fall into the clutches of loan sharks, or even go out of business unnecessarily.

In a trade credit club, short-term credit between participating businesses is ‘cleared’, and everyone makes (or receives) just one monthly payment to (or from) the network to bring their account back to zero. Then, if, instead of getting back to zero, businesses are given credit and debit limits, it becomes a de facto mutual credit network. Research has shown that a basic trade credit club can reduce small businesses’ need for hard cash by 25%, and when mutual credit is included, by a whopping 50%.

A trade credit club brings immediate benefits – especially if money is scarce. It’s a bit like a ‘business improvement club’ with mutual credit as an optional extra (although it would be a bit crazy not to use that option). Trade credit clubs use the same Credit Commons Protocol, and businesses in mutual credit and trade credit clubs can trade with each other via the Credit Commons.

More on Trade Credit Clubs.

Clubs can be formed by existing business networks, local FSB groups, Chambers of Commerce etc; by accountants who are at the hub of groups of local businesses; by local authorities; by social enterprise networks or community groups; or by a group of interested individuals.

The Covid pandemic provided the stimulus to bring together a group of specialists who have formed Mutual Credit Services (MCS) with the aim of setting up mutual credit / trade credit clubs. They realised that lockdowns will mean that many small businesses may close because of lack of money in their communities, and so the ability to trade without money may be exactly the safety net that can help keep them alive. They’re approaching existing business networks, social enterprise networks and local authorities.

Talk to your business / community networks, or your local authority or even your accountant. MCS will be happy to talk with them about launching a club.

However, the free/open source software will soon be available for anyone to start their own club, anywhere in the world.

In the West, individuals don’t tend to be value generators – mostly selling days of labour and buying finished consumer goods. But so many trading connections end with individuals – because they’re the customers of shops, including online shops – that they have to be included somehow.

Small groups of individuals and households can come together in communities to form little savings groups, offering short-term loans to members, and based on trust. These groups already exist in many parts of the world – see this interview.

These groups plug into their town networks, in which groups of businesses and traders also have accounts. Everything is managed by an app. Individuals can add hard currency into their accounts when they have it, and operate within credit limits that give members small amounts of short-term, interest-free credit that helps them get by in hard times without needing to use predatory payday loan companies; plus it allows them to purchase from participating local businesses without the need for hard cash. This not only helps individuals, but builds community and supports local businesses.

More here.


Tomaž Fleischman of Slovenian software company Be Solutions has produced a paper with Paolo Dini of the LSE and Guiseppe Littera of Sardex. Astonishingly, it describes a national-scale credit-clearing network (in Slovenia) and provides empirical evidence of the benefits of credit clearing and mutual credit for the first time.

Tomaž brought another tool to the table – The Tetris algorithm, which allows clearing opportunities to be identified from historical invoice data. What Tetris can do is to take a load of random invoices from a large number of businesses, and find the trading circles that can ‘net off’ (i.e. clear). Finding circular trading loops within a community is very hard, and we discovered why it’s so hard after reading Tomaž’s paper – it’s similar to the classic Travelling Salesman Problem, and needs a lot of computing power to solve. Tetris can’t solve everything, but it’s highly optimised.

This research can show local authorities that if businesses in their area give details about invoices that they may have difficulty paying, those debts can be cleared, and businesses can start spending again, which benefits the local economy. It has to be a big enough network to work well – with sufficient inter-trading, as few as 100 businesses are needed, but the benefits improve with scale; for a more general target, 1,000 businesses with some local presence should provide a good foundation. And municipalities will have more than 1000 businesses in their area. Plus it has to have a reasonable diversity of businesses – but again, this applies to most municipalities.

More on mutual credit for local authorities.

  • 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.

  • Mutual credit can’t be stolen – it’s just a record of who’s done what.

  • Helps get rid of loan sharks.

The pandemic economic shocks at a global scale will reduce the amount of money, work, and trade available for many years to come. Mutual credit can be seen as a way of replacing some of the missing money with trust. Members build trust among each other and as more join the network, the diversity and abundance of goods and services grows as well as the resilience of the economy formed by it. More money is freed for the transactions that absolutely need it, stabilising the members’ cash flow and increasing their chances for business survival through broader economic contractions.

  • 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.

  • It doesn’t require any mining – of precious metals or of digital coins.

Deeper Dive

Mutual credit has a fine pedigree.

Imagine a medieval inn in a typical village or small town. Money barely existed at all in the Middle Ages, but people still got their beer. How? Well, the inn-keeper was happy to serve his customers, because over there was a thatcher, whose job it was to fix everyone’s roof; and there were farmers, a baker, fishmonger, cheesemaker and so on, as well as a cartwright, wheelwright, blacksmith, weaver, leatherworker and various other tradespeople. Everyone knew what everyone else was providing to the community, and who was pulling their weight and who wasn’t. If the baker wasn’t baking enough bread, they didn’t get their beer (or cloth, shoes, fish, roof repairs etc.). This was mutual credit in action, but it was just everyday life for most people. Now this wouldn’t work with strangers passing through. They’d need coins or something to barter if they wanted to trade. But this was unusual – most people would never have seen any actual money, and most trade was local, via some form of mutual credit. Meat was shared when a big animal was killed, people helped others fix their roofs, harvest crops, cut hay, fell trees etc. Risks were mutually held, and there had to be some sort of accounting and governance. In the medieval village, this would have happened in people’s heads (‘tally sticks’ were also used to record debts – they’ve been around for around 20,000 years – then notebooks and pencils, and now we have the advantage of electronic accounting and the internet).

In the 19th century, people like William Batchelder Greene (in the US), and Pierre-Joseph Proudhon (in France) championed mutual credit and mutual banking. Their approach was to petition state legislators to introduce taxes to pay for their schemes or to charter mutual banks, but they were turned down. Permission is not required now, however – schemes can be launched in communities, either with or without the support of state institutions (although ‘with’ would be good). Since the beginning of the 20th century, mutual credit, or something like it, has tended to spring up whenever economic calamities make money scarce. During the 1930s depression, various scrip currencies were used, and the mutual credit Wir Bank was born in Switzerland. amid the hyperinflation and depression between the wars. Its members were businesses rather than individuals, who traded using numbers in an account, not money. It’s still going, and although in recent years it’s focused more on its conventional banking arm, it still handles mutual credit trades totalling billions of Swiss francs annually. It will be interesting to see what happens to the mutual credit side of their business in a time of economic downturn. After the Second World War, at the Bretton Woods conference, John Maynard Keynes proposed what in effect would have been a mutual credit scheme between nations – the International Clearing Union – as a buffer against the kind of reckless behaviour that caused the Great Depression; but his proposal was rejected in favour of one that enthroned the dollar.

During a bank strike in Ireland in 1970, bank customers used the cheques of the closed banks as currency. The hubs of this system were pubs, where customers were known and trusted by publicans (or not, in which case their cheques wouldn’t be accepted as readily). The Irish economy was relatively unaffected by the lack of access to bank funds, until the strike was called off after 6 months. And as Argentina’s economy collapsed in the late 1990s, ‘Credito’ clubs sprang up all over the country, in which by 2000, around 7% of the population was participating. People provided products and services for credit, because no-one had any money. Businesses abandoned factories, and workers took them over, trading for credit. Every town or village had a different system – some with a book, some with a website, some with vouchers, some operating informally. It was ‘chaordic’ – comprised of chaotic and ordered elements that allowed people to trade with each other. Then Argentina’s economy completely collapsed in 2000-01, and the entire population tried to join in. A lot of counterfeit vouchers were printed, which caused massive inflation, and the whole thing collapsed. But by the time it did, the total trading was equivalent to US$400 million!

Since the Second World War, many successful schemes have been launched (see ‘Does it work in the real world?’ - above).

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 was never a society in which the main means of exchange was barter, and money didn’t evolve from barter, but from mutual exchange within communities, where the vast majority of exchanges took place. Barter was always marginal and between strangers.

The recession of the early 1990s saw the creation of hundreds of LETS schemes around the UK and many other countries. LETS is a very similar idea but aimed primarily at neighbour to neighbour relations.

Any businesses that joined those networks found that their services were in demand, but that they couldn’t get what they needed from a network of individuals. Mutual credit is based on business-to-business networks first and foremost – it’s about building a new kind of economy.

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

Cryptocurrencies are based on the idea of money as property, as a token which derives its value from its usefulness and the demand of people to own it. Mutual credit is based on the opposing Credit theory of money, which views money as a relationship between creditors and debtors.

A cryptocurrency is based on a blockchain, where there are many copies of a ledger – all synchronised with each other using technology, without the need for trust, or knowing anything about the people you’re trading with. A mutual credit group hosts its own ledger and manages it any way it pleases, allowing trades between known and trusted trading partners.

Another big difference is that you can still become a crypto billionaire – wealth can still be sucked out of communities and concentrated in the hands of the few (with big implications for democracy). This can’t happen with mutual credit.

Treat it exactly the same as conventional money. You don’t need an extra column in your books, any more than you need an extra column for Paypal payments or bank transfers. It’s just income or expenditure. Your accountant doesn’t need to separate it for your annual accounts either.

Savings and investments: instead of equity or debt, businesses can raise finance by offering vouchers for future production, at a discount. So, say for example a community energy company wanted to build a wind turbine, they would sell future energy vouchers at, say, 10-20% discount. The same can be done for a restaurant, office block, haulage company or any kind of business. Local businesses can obtain funding without going into debt with banks, without having to pay interest, and without giving part of their company away. Local people can save surplus cash and feel secure, knowing that they can obtain energy, housing, food or any of the essentials of life in future, without worrying about inflation (because a kilowatt-hour is always a kilowatt-hour etc.) or bank failures. The vouchers can be either redeemed or sold.

We’ll be blogging more about this soon.

No. It’s just a tool – it’s apolitical. There are libertarian elements on the right that have been proponents of choice when it comes to money. For the left, it takes power away from giant corporations and banks. Even anarchists like it because all the credit in the system comes from the producers and is controlled by the producers. And for both left and right, it builds resilient communities that generate trust – something that we all need. We’re not concerned about ideology. We’re concerned about practicality – what works, what’s going to make things better, for as many people as possible.

Do you have more questions?

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