Mutual credit

"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 system.

In a mutual credit system, creditors and debtors are the same people lending to each other. Transactions are recorded on a ledger, 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 an 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 ^[1]

• 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 exchanges, local exchange trading systems, and timebanking associations, each with a number of offshoots and variations, and their own understanding of what mutual credit means.^{[ citation needed ]}

See also

• Barter exchange  – Direct reciprocal exchange of goods or services without the use of money
• Multilateral exchange  – Transaction, or forum for transactions, which involve more than two parties
• Mutualism  – Anarchist school of thought and socialist economic theory
• Savings pools  – Form of peer-to-peer banking
• WIR Bank  – Swiss bank that issues a complementary currency (WIR franc)
• Collaborative finance  – category of financial transaction that occurs directly between individuals without the intermediation of a traditional financial institutionPages displaying wikidata descriptions as a fallback
• Inside money  – Money issued by private intermediariesPages displaying short descriptions of redirect targets

References

1. Slater, Matthew. "Defining mutual credit". matslats.net. Retrieved 1 February 2023.