In our present monetary system we regard banks as the sole issuer of credit, and its access is tied to interest payments, placing strain on borrowers. Moreover, card-handling costs, cash flow, and inability to borrow constantly hold back small and medium sized businesses.
Members of a mutual credit club issue credit to each other. They benefit by cutting their interest and transaction costs from goods they already obtain from a local business. They also gain flexibility and liquidity in their cash flow, freeing up cash that they can use for other immediate needs. The result is increased trade volume and economic activity in the community.
Finally, each member can decide how much they are willing and able to offer into the club (the maximum credit they wish to hold).
In a mutual credit club, a group of businesses that do at least some of their trade with each other come together and agree on a process for extending short term trade credit to each other.
Mutual credit is a simple way for a community to reduce dependence on banks, loans and money.
Moreover, mutual credit units cannot be stolen and their supply is elastic, following the members’ transaction needs rather than inflating and losing its value. Since mutual credit units are not property but simply a measure of member’s credit or debit with respect to the other members, they cannot be stolen.
In common Trade Credit, or swop agreements between businesses, two parties exchange roughly the same value of goods without using money. In a Mutual Credit Club, the same kind of agreement is made between many parties, and an accounting system remembers how much each member has given and received. Accounts are are kept with units usually equivalent to the national currency.
In a new system with no previous transactions, when Annie’s Restaurant gets 100 units of Ben’s Bakeshop sourdough, Ben’s credit status is +100, while Annie’s is -100. Ben can now use his +100 Units to obtain goods from Cathy’s Orchard, or any other member of the network, while Annie’s balance of -100 represents her commitment to provide goods or services to the members of network in the near future. When Annie earns her balance credit back up to 0, that means her part of the exchange is complete.
Members set credit limits and rules of engagement to manage trust in the trading environment.
The pandemic economic shocks at a global scale will reduce the amount of money, work, and trade available for many years to come. Mutual credit can be seen as a way of replacing some of the missing money with trust. Members build trust among each other and as more join the network, the diversity and abundance of goods and services grows as well as the resilience of the economy formed by it. More money is freed for the transactions that absolutely need it, stabilising the members’ cash flow and increasing their chances for business survival through broader economic contractions.
Successful Mutual Credit Clubs include a variety of businesses trading with each other in semi-closed loops. As well as driving local, circular economies from the bottom up, increased capacity builds resilience and autonomy. Hundreds of local and national authorities worldwide have declared a climate and ecological emergency, and supporting Mutual Credit is a concrete step towards both mitigation and adaptation.
The recession of the early 1990s saw the creation of hundreds of LETS schemes around the UK and many other countries. LETS is a very similar idea but aimed primarily at neighbour to neighbour relations, and businesses who could supply these networks, could not procure from them. What Mutual Credit Services is offering is closer to a business barter network, the key difference is that our clubs would be owned and run by members, not for profit.