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Mutual Credit



Mutual credit is an popular, yet often debated issuance mechanism and concept for complementary currencies.

With mutual credit, in the narrow sense, the currency units are created at the moment of exchange, not requiring a preceding loan from an issuing authority. In practice maximum limits are set for each trader, similar to overdraft limits on conventional bank accounts.

But, different from an overdraft from on a conventional bank account, in mutual credit barter exchanges there is no third party issuer of credit (i.e. bank). Purchases simply result in balance sheet adjustments directly (peer-to-peer) between the buyer’s accounts (going down) and the seller’s account (going up), even if this brings the buyer’s account into negative. This results in the phenomenon of all user account balances always adding up to zero.

In practice, some initial loans are often granted from the system’s operators own account 1. This resembles credit issuance from a central authority, but allegedly has more psychological then issuance rationals, since people often feel uneasy about running a negative account.

Further more, since the two part of the word are commonly used and understood across many languages, “mutual credit”, in a broader sense, and in some contexts also refers to more traditional credit issuance arrangement not following the above described issuance mechanism but being “mutually” agreed by the stakeholders of the currency, e.g. in a cooperative bank structure.

In a typical mutual credit system debits and credits both do not bear interest.

For ease of trade, mutual credit currencies can use anything as their unit of account, but often, especially in B2B exchanges, use legal tender. The currency units are then at par with the national currency in the area of operation but not exchangeable for Euros, Dollars, GBP…
The backing of these currencies generally lies in the promise or contractual obligation of the participants to accept the currency for their goods and services, at least in part, or collateral obligations.

Typical Purpose

The purpose of mutual credit can be seen as overcoming the limitations of barter and fiat currencies 2.  In addition, it unlocks possibilities for trade which otherwise would not occur in ordinary currency, due to lack of liquidity. Greco 3 wrote that in a mutual credit system, members “essentially create their own money in the form of credit but saving the cost of interest, while distributing the money themselves according to their own needs. In such a system, holding credits is evidence that so much value has been delivered to the community [of participants], while a debit balance indicates that a member has received that much more from the community than she or he has delivered. A debit balance thus represents a person’s commitment to deliver that much value to the community sometime in the near future”


This issuance mechanism stresses the need for appropriate governance systems determining participation, arbitration and, practically, the individual credit limits. In this sense, mutual credit “in the narrow sense” would mean that all governance is left to the individual and their interactions. To the degree as restrictions and rules are imposed on participants by the host or organiser of the currency the currency might acquire characteristics normally associated with fiat or bank currencies.

In the wider sense,  the term might also refer to centrally issued currencies like the Swiss WIR, where the units are centrally created up-front as bank loans, but the issuing organisation, the WIR bank, is set up as a cooperative, giving the users of the currency the possiblity to co-determine the issuance.

Cooperative structures can be more directly applied to the governance of mutual credit currencies by their users as in the business-to-business currencies TradeAuthority and Tradeqoin.


Typical examples of mutual credit systems include LETS, Time Dollars and trade exchange exchanges.


  1. Godschalk, H. (2012) Does demurrage matter for Complementary Currencies?, International Journal of Community Currency Research 16 (2012), Section D, pages 58-69
  2. Greco, T.H. Jr., (2001) Money – Understanding and creating alternatives to Legal Tender, Chelsea Green Publishing: White River Junction: Vermont
  3. Greco, T.H. Jr., (2001) Money – Understanding and creating alternatives to Legal Tender, Chelsea Green Publishing: White River Junction: Vermont: 68
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