Use-Credit Obligations

As well as exchange, economies require savings and investment, and our current money works poorly in these roles. Its dual use for facilitating short-term exchange and long-term saving results in difficult-to-predict fluctuations in spending power that make it hard to rely on whether as a result of inflation or the ever-present crises around pensions and asset bubbles of all kinds.


A use-credit obligation (UCO), as pioneered by IslandPower, is a generic term for a voucher for future utility that can be used for savings, insurance, and debt-free capacity investment. For example, if a community wants a solar farm, the company contracted to build and operate it can issue energy-credit obligations (ECOs, denominated in kWh of electricity) that can be redeemed as payment for power once the farm is up and running. These vouchers are sold at a discount to investors with more mutual credit than they need for day-to-day exchange, which is then used by the company to pay for labour and materials. Investors can be matched with different stages depending on their risk profile.


Once the farm comes online, the investors can either redeem their ECOs for electricity, or sell them at the current kWh market rate, realising a return from their prepayment discount. There is however no opportunity for speculation as ECOs will never be worth more than the market price of the utility for which they represent prepayment (otherwise people would not buy them). The diagram below illustrates the process.

In the first stage, risk-tolerant investors with excess mutual credit use it to finance new productive capacity, receiving discounted ECOs (denominated in kWh of electricity) in return.

As the new infrastructure nears completion, the ECOs are sold on to (pre-arranged) investors with a lower appetite for risk (or perhaps institutions with social provisioning obligations). They are then sold (or given) to consumers at the going market rate for the relevant utility (in this case, electrical power). Finally, consumers redeem them in payment of their utility bill.

The end result is that the community has new power generation capacity and the investors get a return, but no-one has had to go into debt.


UCOs can also act as inflation-proof savings instruments that are backed by local productive assets – a stock of these vouchers provides real security, as they are a claim on an actual quantity of something tangible and inherently related to consistent human needs (such as power). They can be denominated in any reasonably objective unit appropriate to the value flows being monetised; square metres of occupancy rights, standardised veg boxes, or computational operations, for example.


The trading data required for multilateral obligation set-off provides a map of local economic activity that can support strategic investment decisions with UCOs, particularly into enterprises which struggle with persistent negative mutual credit balances (indicating a lack of capacity to meet exchange partners’ desires), or those that might fill niches in the local circular economy.


Their ‘hard’ backing also makes them suitable for settling (in place of fiat currency) outstanding mutual credit balances within Trade Credit Clubs. This is facilitated by the Credit Commons Protocol, which can accommodate UCOs interchangeably with mutual credit balances. Combined with participatory governance processes, these mechanisms make it possible to keep the economy in balance. Collaborative exchange and investment can thereby provide the underpinnings of an emerging commons economy.


Mutual Credit Services has developed a UCO-based High Street Voucher model that brings consumers into collaborative finance relationships with local businesses, and is designing Common Asset Society systems for housing, energy, and other infrastructure.

Further reading

Use-credit obligations - introduction, Chris Cook, Dave Darby, and Dil Green, lowimpact.org.

Saving and investment in a mutual credit world, Dave Darby, lowimpact.org.

Energising Scotland – Introducing the ECO, Chris Cook, Bella Caledonia.