Mutual Credit

Mutual credit is a method of accounting for exchange in a network of peers. A shared ledger tracks the trades (usually denominated in the national currency), recording everyone’s balances. The numbers in a member’s account are not commodities, but quantified relationships: when a sale is made, the sellers account is credited, the buyers debited.

The overall balance of a network is always zero – the positive and the negative are tracked through the system until they can be redeemed against each other. The tendency of such a system is to return to balance, as members are required to match buying with selling over time in order to maintain their ability to trade. This is imposed by balance limits tied to members productive capacities.

Accounting entries on Mesopotamian clay tablets are the earliest known form of money (predating circulating coins by several thousand years), and since the beginning of the 20th century, mutual credit, or something like it, has tended to spring up whenever financial crises make state-backed money scarce. WIR Bank was founded in Switzerland in 1934, during the Great Depression. It enables businesses to trade with each other using private credit in a co-ordinated way, and currently facilitates around a billion euros of trade per year without money changing hands. However, it is not truly mutual’, as the credit is centrally issued by WIR Bank itself (as opposed to directly between trading partners), and requires collateral.

The large-scale, for-profit business barter industry has developed since the Second World War, overseen by the International Reciprocal Trade Association, comprising 400 000 businesses and trades valued at $14 billion in 2019. Sardex is another successful business-to-business mutual credit network serving 4000 members, with trades approaching €50 million per year.

True mutual credit requires participants to collaboratively manage the risk of issuing and accepting credit. This requirement has meant that most mutual credit systems have either remained small and community-based (like time banking, in which hours are used as the unit of account), or have had to centralise to scale up (like WIR Bank). Even scaling up via centralisation has limits, as risk management and brokerage requirements make running the network increasingly costly. Furthermore, businesses in particular must be able to include their mutual credit balance in their usual accounting systems, which has been an additional barrier to adoption.

Mutual Credit Services has developed the Trade Credit Clubs model to address these limitations and take mutual credit mainstream, starting with business-to-business trade. We are also developing open-source mutual credit software powered by the Credit Commons Protocol for our Svensk Barter and Land Care Trade projects.

Mutual credit is not intended, by design, to act as a long-term savings instrument; a large positive balance is more an indication of exposure to the future ability and willingness to trade of other group members (where risk clearly increases over longer intervals) than it is a condition of wealth. If mutual credit offered indefinite purchasing power, the incentive would be to hoard it, reintroducing systemic shortage of liquidity (not to mention inequality). Instead, it encourages spending of surplus for a dynamic, high-turnover economy with a credit supply – set by the aggregate of mutually-agreed balance limits – that ‘breathes’, expanding and contracting according to capacity and trust.

However, economies also need instruments for saving and investment. Use-credit obligations allow persistent positive mutual credit balances to be used for investment in commons infrastructure, providing both a return and new productive capacity whilst keeping the network in balance.

Further reading

Mutual Credit - Introduction, Dave Darby,

The Alternative to the Current Money System: Tim Jenkin, Matthew Slater, and Dil Green, Dave Darby,

The mutual credit society, Matthew Slater,

About Mutual Credit, Credit Commons Society,

The End of Money and the Future of Civilization, Thomas Greco, 2009, Chelsea Green.

Debt: The First 5000 Years, David Graeber, 2011, Melville House.

Stodder, J. and Lietaer, B., The Macro-Stability of Swiss WIR-Bank Credits: Balance, Velocity, and Leverage, Comparative Economic Studies, 2016.

Motta, W. et al., Self-Funded Social Impact Investment: An Interdisciplinary Analysis of the Sardex Mutual Credit System, Journal of Social Entrepreneurship, 2017.