Mutual credit FAQ

Thanks to Dil Green for kick-starting this FAQ page.


QUESTION: Where does this credit come from?

That’s one of the great things about MC – it doesn’t care about where it comes from. For MC, credit is just information. It’s like money, yes – but with different rules.

‘Hard’ currencies are set up so that the person that makes the money is in control – it all comes from them, and if you want any of it, you have to do something for them – either work for them, or borrow it from them and pay interest.

Mutual credit doesn’t work like that. Credit is created by the marketplace, for the marketplace. All you have to do to get credit is join the marketplace. Different marketplaces can set their own rules, but usually, you will start off with a positive balance in your account. Not an enormous amount, but enough to get you started. Go ahead – get something you need from the marketplace!


QUESTION: Wow! That sounds too good to be true! Can that really work?

Yes it can and it does work – schemes have been working all over the world in different forms for 30 years. There are community versions and big business versions.

It really does work.

If the marketplace is busy, then people use it, and they can easily find people to trade with – so they find the credit valuable and keep using it. If the marketplace doesn’t work well, then they quickly stop using it, and the credit stops being worth much.

The rule is to keep spending your credit. That way, no matter what happens, you won’t lose anything.


QUESTION: But why would you go to the trouble of setting up some whole new system? Isn’t it easier to use normal money?

The simple answer to this question is: ‘yes’ – but ONLY if you have easy access to enough money.

Mutual credit (MC) is most useful in places and for people who find it difficult to get access to enough money to get what they need. Although I would argue strongly that the idea of participating in a diverse currency economy is a Good Idea for everyone – as these can give you alternatives at times of economic crisis. As different currencies have different structural characteristics, it is less likely that they will fail at the same time.


QUESTION: But isn’t the aim with money to save it up? Why do you say that with mutual credit I should always spend it? What will happen if I get sick and can’t earn credits – how will I use the scheme then?

This is a really important question, with a few surprising answers. It gets to the heart of why MC schemes work well.

Answer One: You don’t save credits up because MC marketplaces are much smaller than the hard currency marketplace. It’s too risky to save up credits. If a local problem happens, the marketplace could shut down and your big currency balance would be worthless.

Answer Two: The only time any money actually does anyone any good is when it changes hands – the rest of the time it does nothing at all. so holding on to credits is not in your best interest – or in the best interests of the community. Go ahead and spend it!

Answer Three:You don’t save credits because there are no interest rates – you don’t earn money on your balance, as you might if you have money in the bank.

Answer Four: You don’t save credits because there’s no problem if your account goes negative.

That’s right – there is no such thing as going into the red! (NB: different schemes have different policies – some schemes may outlaw negative balances) First – there’s no interest, so your negative balance doesn’t get worse. And second, there’s no bank to chase you for the money. Your negative balance indicates a commitment to the community to provide the goods and services you offer in the future to make good. If you’re sick, then it may take a little while, but you are trusted.


QUESTION: Trust! But how do I know I can trust the other people in the marketplace – what if someone goes very far negative and then leaves the marketplace?

Another important question. Again with more than one answer.

Answer One: You can trust people in the marketplace because the credits they earn in the marketplace is only any use within the marketplace – they can’t spend it anywhere else. If they get a bad reputation in the marketplace, no-one will trade with them.

Answer Two: Although you can spend even if your balance is negative, there are limits. The system will set a maximum negative limit for each user, which will depend on many things – particularly on the size and turnover of the marketplace and the user’s history. If the user has special circumstances – like an injury, or family trouble, then other users support them by trading with them without asking for much to top up their account. So no-one goes too far negative.

Answer Three: If someone borrows ‘hard’ money from you and then runs away, then of course you have a problem. But if someone has a negative balance in a mutual credit scheme and runs away, no-one actually loses anything. Everyone who has been paid still has their units. Everyone carries on as before. Arguably the community as a whole has ‘lost’ something – but because the size of negative balances is not allowed to get too big, the system absorbs the negative without anyone suffering directly.

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