The exchange medium for the coronavirus crisis: crypto or mutual credit?

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Exchange medium coronavirus crisis

This is the third in a series of articles about how mutual credit can help us get through the economic problems caused by the corona virus. The main points to get across are:

  1. There’s going to be a shortage of money.
  2. Mutual credit is a moneyless trading system.

That’s it! Mutual credit can help local economies survive when there’s no money around.

Matthew’s article goes deeper into the concept of mutual credit, and compares its potential to cryptocurrencies in an economic depression.


Bitcoin was born in the midst of a financial crisis. Governments were responding by printing money, which supported and yet undermined the ideology of free markets they were espousing. Bitcoin’s early evangelists boasted that it was impossible to create new bitcoins and that, because Bitcoin was an un-hackable ledger, it made banks obsolete and government manipulation impossible.

Many cryptocurrency advocates believed and even hoped that the economy was on the brink of collapse – and maybe it was – and they told stories and hoped-for futures when the new technology in which they were so invested would save the world (and make them rich and prove them right!) We agree there are imaginable scenarios when bitcoin would be useful, but on the whole a bitcoin future is not universally desirable as government, law and order, and hence commerce would likely have broken down. That’s not the future we are glimpsing through the lens of the COVID-19 pandemic.

In this article I’m going to tell you why, not cryptocurrency, but mutual credit systems, linked together in the Credit Commons, is the best monetary preparation we could be making. What seems increasingly likely is a recession such as the world has never seen. That means there won’t be enough money circulating to keep the economy going. Widespread poverty and unemployment, while the means of production go unused. Both Bitcoin and mutual credit can create alternative forms of money, but let’s understand their similarities and differences.

Neither system needs physical notes or coins – they are both pure information in the form of ledgers recording payments between wallets. Bitcoin can only exist on the internet and mutual credit works best on the internet.

The main difference is where the digital tokens come from and what they represent. Bitcoins are issued as a reward to people who are investing electricity ensuring the blockchain is unhackable. They come essentially out of nothing every ten minutes or so and land in the wallet of a random ‘miner’. Bitcoin is a form of absolute property which comes with no social obligation to reciprocate or exchange.

Mutual credit doesn’t have ‘tokens’ at all. Some members ‘owe’ goods and services and and other members are owed. There are no credits without corresponding debits. Therefore every member who owes is trusted by the rest of the network to supply goods and services up to that amount. Every member who is owed is also obliged to consume those goods and services. A mutual credit system therefore is about exchange, and the units in it are just a measurement of how far away from parity each member is.

The second difference is why they are valuable. A cryptocurrency token has no value or purpose in and of itself, and no authority declaring its value or enforcing its use. it is only valuable if there is demand for it in the marketplace. While some people want Bitcoin to buy things privately, by far most of the demand for Bitcoin has been from people who think the price will go up. This has made the price very unstable. By contrast, mutual credit has value because each unit of credit is needed by someone else in the network who needs to earn it back at an agreed rate.

The third difference is the openness of each.  A cryptocurrency is a global system which is open to anyone anonymously. The integrity of the ledger is guaranteed by an algorithm, but there is a high cost in electrical energy. Mutual credit involves a closed group of people who trust each other. This trust reduces the cost of running the system dramatically, in exactly the same way that if you trust your business partners you don’t need to hire bodyguards.

Bitcoin is principally intended as a payment system for settling debts with a valuable commodity. Mutual credit, instead of settling debts with an anonymous virtual commodity called money, is about cancelling debts out by providing goods and services back to the creditor.

Now we have an idea what each system is, we can look at how each behave in each of the following dimensions.

How well would it provide liquidity (circulating money) to the economy?

Bitcoin has a fixed supply of coins at a variable value. That means if the demand for money increases, the price of Bitcoin increases to match it, and all the people holding Bitcoin get rich at the expense of everyone who will buy later. And the converse is true. As the global economy gradually adopted Bitcoin over the course of a few years, the early investors would be richly rewarded, which is perhaps not the greatest injustice.

Mutual credit has a variable supply of money at a fixed price. That means whenever money is needed, anyone can have whatever overdraft their peers trust them to pay back. There’s as much liquidity as needed, by definition, with no speculation on the price of money. The drawback is that if you want to trade far away, you first need to build the political infrastructure to manage that trust.

Different kinds of decentralisation.

Bitcoin is merely physically decentralised but the Credit Commons is much more profoundly so. Bitcoin launched a new era in decentralised computing, and with it a whole narrative about why decentralisation was critical for resilience and integrity. Yet aside from having a massive number of copies of its ledger, Bitcoin is centralised in other ways. It is one type of thing, with one truth, one monetary policy for all, one team building it, and  all the decisions about the future of the protocol are made by a single stakeholder group – the few people who invest the most in it, and receive the transaction fees from it. So Bitcoin, with a copy running on a satellite, and will remember who owns what long after humans are extinct.

The Credit Commons is much more profoundly decentralised. Each group operates completely independently declaring its own unit of account, managing risk, membership, and as they coordinate they decide how much liquidity/risk they want from their peers.

What kind of relationships are implied?

A key feature of Bitcoin is its anonymity. It doesn’t matter who you are, if you have the key to a wallet then you can spend what’s in that wallet. There are no rights, no responsibilities, no courts, no taxes, no recompense, those coins are a form of absolute property dreamed up by anarcho-capitalists.

This anonymity could be said to promote a kind of pure market in which the products are fully in focus and the traders are invisible to each other. But in practice, it has become a magnet for criminals and scamsters not wanting to leave a money trail.

In contrast a mutual credit system tends to bind its members together because through internal trade, members increase their own turnover, even if the prices aren’t the cheapest, and because if one member defaults, every member is on the hook.

With its global scope and anonymous wallets Bitcoin offers no opportunity and no incentive to build relationships, but mutual credit aligns the incentives of its members, drawing them into inter-dependence.

How easy it is for speculators / big finance to abuse?

in the current money system we suffer from powerful interests synchronising to hoard the currency in order to drive the price up, then dumping it in order to drive the price down. This is similar to what drives the business cycle now, and it means that when you most need the money, the least is available. These speculators have a global scope and can push markets around from a single wallet. The variable price gives them plenty to gamble on.

The Credit Commons can not be pushed around by single players because if credit is short, members can simply issue more. Large account balances neither yield nor pay interest because money is not an a scarce asset that can be rented out. Since the price of credit is stable it is hard to imagine speculators extracting anything.

Is it ecological?

Bitcoin has a major flaw because the more it is worth, the more energy it consumes [stats here https://digiconomist.net/bitcoin-energy-consumption] although newer cryptocurrencies don’t have this issue.

The major ecological problem with fiat money which nobody is talking about is that the economy has to grow if debts are to be repaid with interest and money is saved at the same time, https://www.opendemocracy.net/en/transformation/money-debt-and-end-of-growth-imperative. We can’t reduce economic activity and hence emissions without changing the nature of money.

Cryptocurrencies, if they were more widespread, would most likely become the basis of fractional reserve lending, and behave exactly like fiat money, driving growth as debtors borrow ever more to stay solvent. Mutual credit currencies allow groups to trade as much or as little as they like; they don’t force growth or degrowth, but leave it to the members to decide.

As a new, quasi-monetary technology, Bitcoin deserved a lot of attention, but the anarcho-capitalist world and economy that Bitcoin would uphold would be abhorrent to most of us. It would be too easy for governments to pyramid a new economic system on Bitcoin – just like the Bretton Woods system was a pyramid on gold, and the petrodollar system is a pyramid on petrodollars. By contrast, mutual credit takes the fundamental economic power – the power to issue as much credit as needed – and puts it in the hands of producers and consumers, the very people who need it the most. All we need to do is organise. That’s why Lowimpact is encouraging everybody to get involved in the Open Credit Network – http://opencredit.network – to cope and build a better post-Corona economy.


Matthew SlaterAbout the author

Matthew Slater develops software for complementary currencies. He co-founded Community Forge, which free hosts software for collaborative credit schemes; he co-authored the Money & Society MOOC, a free masters level multidisciplinary online course. He co-drafted the Credit Commons white paper, a proposal for a global solidarity economy money system, based on mutual credit principles. Core team member of @deepadaptation. Collapsenik.