Mutual credit: introduction

“It only requires that we each take control of our own credit and give it to those individuals and businesses that merit it and withhold it from those that do not.” – Thomas Greco

What is mutual credit?

It’s a means of trading, of exchange, that doesn’t require money, doesn’t incur interest and doesn’t involve banks. It’s based on local groups of businesses / traders, who get to know and trust each other in a geographical area or a business sector, and, in effect, give each other interest-free credit, when they purchase goods and services from each other.

Each business gets an account. They go into debit when they buy, and into credit when they sell. There’s a limit to how far you can go into credit or debit – you wouldn’t want to continue to trade with someone who never bought anything from anyone else in your community, or never provided anything useful for anyone else. Over time, everyone’s account hovers around zero, as purchases are balanced out by sales.

This medieval tale shows how self-issued credit works in a local community. Each trader’s credit has the traders’ name on it, and the risk is theirs alone. In mutual credit, the risks are mutually held, which means that mutual credit schemes require governance. Unlike medieval market traders, we now have the advantage of the internet to organise it.

Mutual credit isn’t barter. With barter, two people exchange goods or services with each other. You have to find someone with something you want, and who wants what you have, which is difficult. With mutual credit, you get an account, and can trade with anyone – it doesn’t have to be reciprocal. If you sell, you get credit in your account; if you buy, you go into debit.

There are similarities between mutual credit and local currencies. The main difference is that the former involves a membership scheme, and local currencies don’t. Local currencies are usually bought with official currency, which ties them to the banking system in ways that mutual credit isn’t.

Software is being built to allow any group, anywhere in the world, to trade with any other. So you can trade with people in different groups, in different towns, and in different countries, in the same scheme, seamlessly, with the same credits. It can become a global system – a ‘credit commons’.


A street ad for the Sardex mutual credit system in Sardinia.

Here are ways that mutual credit already works, in order of increasing formality.

Families and friends: people do things for each other because they want to; they might keep mental tallies, or sometimes exchange verbal or written IOUs.

LETS & timebanks: LETS began in Canada in the 1980s, and are community-based mutual credit schemes that involved individuals more than businesses; timebanks are similar to LETS, but credit is based on hours worked. Neither has grown to challenge the current system.

Eco- / Bangla-pesa: William Ruddick set up a system called Eco-pesa (a printed voucher redeemable for one shilling) in slum areas of Kenya, from which developed Bangla-pesa – another voucher, but this time issued by the people themselves, not bought with shillings. Businesses, including new co-operative farms and stores, flourished. The idea is spreading via Grassroots Economics to other parts of Kenya and to South Africa.

Sardex & Wir Bank: Sardex is a business-to-business credit network in Sardinia, run socially (i.e. for more than just profit), and restricted to SMEs. There were trades worth the equivalent of over 40 million euros in 2017 – on an island with the population of Birmingham! The WIR Bank started in Switzerland during the depression between the wars. In 2005 there were trades equivalent to 6.5 billion swiss francs (about £4-5 billion) – but with no money involved.

Commercial barter: in the 1960s and 70s, commercial barter / trade exchanges developed that allow businesses to trade by offering credit to each other, avoiding interest on bank credit. Commercial exchange brokers make their money from fees and commissions, and are overseen by the International Reciprocal Trade Association. Some are huge – like Bartercard – but they’re for-profit and not democratic.

Short video report on the Wir Bank in Switzerland. It has over 60,000 members, all over the country. Here some of them explain the benefits to their business. It’s a mutual credit system, completely separate from any official currency. Payments are made via a card, that debits the account of the person buying, and credits the account of the person selling.

What are the benefits of mutual credit?

For small businesses

  • Banks don’t like lending to small businesses. Mortgages, yes; governments, yes; large corporations, yes. But not small businesses – it’s too much admin, too much risk, and not enough scope for profit.
  • So this is, in effect, a way of providing interest-free credit to each other, without paying fees to banks. It provides essential liquidity within trusted networks.
  • Businesses become part of a network of trusted customers.

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.

For society

  • Builds trust within communities.
  • Keeps wealth in the communities where it was generated.
  • Only rewards people who do useful work.
  • Mutual credit favours local procurement, which reduces food miles and everything else miles.
  • Allows economic activity to happen in communities that have very little money. To paraphrase Alan Watts, saying that people can’t trade because there’s a lack of money is like saying that people can’t build houses because there’s a lack of centimetres.
  • Protects communities from external financial crashes. The more you trade in mutual credit, the less you’ll be affected by a global financial crash. 2008 was a stumble. If the economy falls completely, credit commons may be the only safety net.
  • Provides an alternative and an antidote to the damaging banking system.

There’s a lively mutual credit scene in Australia, where they have developed their own Australian Community Exchange System network.

To get philosophical…

When the means of exchange is also a store of value (i.e. you can spend it or you can accumulate it), there are problems. As it’s accumulated, it’s sucked out of circulation, so businesses can’t earn it, and there’s very little money for people to spend, although all the same skills and resources still exist.

This will not only lead to a ‘lack of money’ in our communities, but it will mean that wealth concentrates in fewer and fewer hands. And that’s exactly what’s happened. Then that concentrated wealth overflows into the political system and corrupts it. And that’s exactly what’s happened too.

This isn’t a ‘left’ or ‘right’ position. A market based on mutual credit would be much freer than the one we have now – skewed as it is towards banks and corporations. But it’s also non-extractive, in that wealth isn’t sucked out of your community. It’s just a practical tool – it doesn’t have an ideology attached.

Grassroots economics have introduced voucher schemes into poor areas of Kenya. The vouchers don’t have to be bought with official currency – they are just to facilitate trade locally in a membership scheme, and in fact represent a mutual credit system.

What can I do? and have partnered to develop a UK-wide mutual credit scheme – the Open Credit Network. We are a co-operative, using free / open source software. This approach is very important to us. We want to make our systems freely available for anyone, anywhere, to set up a co-operative network, that can then plug into the ‘credit commons’. This means that although we’ll have to work out some kind of fee structure in future, to cover the costs of running the network, we’ll never extract profits from our members.

The Open Credit Network is a UK-wide mutual credit network that will involve many local schemes, and will itself plug into the global ‘credit commons’.

Here’s much more about the Open Credit Network (including a membership agreement) and express interest via the button on the website (and below) and join the list of businesses that have already signed up. We’ll let you know when we’ve found some new customers for you to trade with.

Businesses that join the network offer goods and services to other member businesses in exchange for credits, at the same prices they charge in regular currency (for convenience). Each business will be listed in a directory of “offers and wants” enabling other members to find the goods and services they need, and to find new customers and suppliers.

Trades are conducted in credits or a ‘blend’ of traditional (fiat) currency and credits – to ensure businesses are able to cover the costs of raw materials and other necessities which are not available in credits, and cover their tax liabilities (i.e. VAT is still payable on mutual credit trades).

The buyers credit balance goes down – the sellers balance goes up – the overall balance of the network remains at zero at all times.


You can develop new skills to provide products or services for a willing group of local customers, and maybe turn that hobby into a career.

Can you help spread the word? Please tweet, like, share this page – in fact tell anyone you know who runs or works for a small business. And if you’d like to work more closely with us on this project, please get in touch.

Thanks to the Open Credit Network for information.

The specialist(s) below will respond to queries on this topic. Please comment in the box at the bottom of the page.

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.

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