How Positive Money inspired me to set up a national mutual credit system

This blog is a guest post by Dave Darby of Lowimpact.org, and does not necessarily reflect the views of Positive Money.

I often trawl the web just speculatively looking for interesting ideas. TEDx talks are a favourite. A few years ago I came across an intriguing TEDx talk by Professor Jem Bendell called ‘the Money Myth’. I’d been primed for this, as I’m on Positive Money’s mailing list, so I’d seen their videos explaining that money doesn’t come from where most people think it comes from – wherever that might be. If you haven’t seen their banking 101 course, it’s well worth it. Here’s the first one.

I, like most people I know these days, am really busy, and so I hadn’t got more involved with Positive Money (although I still intend to – they’re doing a great job of raising awareness of the money system). But there was always something nagging at the back of my mind – that nothing’s really going to change as long as we have a money system that sucks money from ordinary workers, homeowners and taxpayers and continually dumps undeserved and enormous amounts of wealth into the banks. When I saw Jem Bendell’s talk, it made me believe that actually, there must be a way to build an alternative money system based in communities, and not controlled by the banks. Here’s his talk.

I dug a bit more and found another colleague of Jem’s – Matthew Slater – who had written a white paper on ‘Credit Commons’ – a way of linking together mutual credit schemes to form a global network. That white paper is here. A common response was, ‘isn’t this just LETS? That didn’t work, did it?’ Well, they’re right that LETS systems work on the same moneyless principles, but they tend to involve activities that might well have been moneyless anyway – babysitting, loft clearances, lifts etc. But the mutual credit idea is commercial – it’s about businesses and trade. See below for more about mutual credit.

Next came a book that was recommended in the white paper – Tom Greco’s the End of Money and the Future of Civilisation. If I could only recommend one book to anyone, ever, this would be it. I wanted to learn more, and I discovered that Jem Bendell and Matthew Slater had worked together to produce a MOOC (massive open online course) called Money and Society. The MOOC is free, unless you want a certificate at the end of it, which I didn’t. You can sign up to it too – it happens several times a year, and the next one is in February.

Matthew is a perpetual traveller, currently residing in an anarchist enclave in Athens. He’s been to stay with us several times, and we’ve talked about how we might push the mutual credit agenda. On his recommendation, I attended some sessions of the recent Open.coop conference, where Matthew was speaking. I spoke with Matthew and conference organiser Oliver Sylvester-Bradley, and we decided to build a UK Mutual Credit Network. At the moment, we’re only looking for expressions of interest, which you can submit via the form here. When we launch, we’ll invite interested parties to join.

What’s mutual credit?

Mutual credit is a trading scheme that doesn’t use or need state-issue currency. Everyone in the scheme offers their products and services to the rest of the network to be allocated a line of credit, and can purchase products and services by going into debit. Everyone starts with an account set at zero, and has limits on how far they can go into debit or credit. But you can start buying without earning first – in effect everyone in the network is offering a limited amount of interest-free credit to the network. This trust provides liquidity in the market, enabling everyone to spend. This produces positive balances in the accounts they buy from, encouraging more spending. Over time, as experience gives confidence, trust increases, and the size of credit and debit limits can be increased – allowing expansion in line with demand.

It’s not barter, because you don’t have to find someone who’s offering what you want and wants what you’re offering. You can buy or sell to anyone in the network. Mutual credit is not an alternative currency or tax avoidance scheme.

How it works

Businesses trade with each other and account for trade in trade-credit units. Some key differences from normal currency make it work in places where cash is scarce (too often an issue for small businesses):

• You don’t need to get hold of trade credit before you spend – you have a credit limit

• There are no debts – your credit is a promise of willingness to trade with other members, nothing more. No interest is charged on negative balances (or earned on positive ones)

• Everyone you trade with is also a member – you can see what they offer, see what they need, what their balance is, and know that they abide by the same rules that you do

Potential members normally have one main concern, which goes like this: “Of course our customers would like to get what we do on credit – but we don’t want anything that they make or do – so how could this work?”

The answer to this question is important – and illuminating: a mutual credit network must include enough variety and scale so that it joins traders in loops. Eventually, the trade credit that one trader spends must pass around a loop and result in someone else buying from the original trader to redeem the credit. The loop might be short and simple, or long – and interestingly, the longer the better – because “money” only does anything useful when it changes hands – so the more times the credit changes hands before it gets redeemed, the better for the economy.

This is why we’re gathering expressions of interest before we launch – to build a directory of interested businesses – what they offer, and what they need, so that we can be sure that they can slot into a loop that can work for them – so that the network develops effectively.

Why is it a good idea?

“Money”, as we know it, is mostly created as interest-bearing debt by central and private banks, and enforced as currency by governments which will only accept tax in this form – we call such state-sanctioned forms of money ‘currency’. This could realistically be described as the greatest problem on earth – the root cause of the majority of other global problems, such as environmental destruction, poverty and hunger. If we are going to fix these systemic issues then, ultimately, we have to reinvent “money”.

We believe that mutual credit has a strong structural bias against capitalistic, exploitative business modes, and that, for capital-poor businesses, mutual credit will offer a business advantage.

This is from Thomas Greco, author of the End Of Money And The Future Of Civilisation:

“Mutual credit, and credit clearing, are the highest stage in the evolution of reciprocal exchange, which, in effect, make money as we’ve known it obsolete. The fact is that goods and services pay for other goods and services, whether we use money as an intermediate payment medium or not. Credit clearing makes the use any third party credit instrument (money) unnecessary.

Present day banking is mainly a credit clearing process in which additions and subtractions are made to their customers’ account balances. However, banks perpetuate the myth that money is a “thing” to be lent. If a client’s balance is allowed to be negative, the bank considers that to be a “loan” and will charge “interest” on it. Has the bank loaned anything? Not really. What they have done is to allocate some of our collective credit to the “borrower.” For this they claim the right to charge interest.

Any group of traders can organise to allocate their own collective credit among themselves interest-free. Done on a large enough scale that includes a sufficiently broad range of goods and services spanning all levels of the supply chain from retail, to wholesale, to manufacturing, to basic commodities, such systems can avoid the dysfunctions inherent in conventional money and banking and open the way to more harmonious and mutually beneficial trading relationships.”

Mutual credit can help insulate a community from inflation, recession or financial collapse in the wider society. The more you trade in the system, the less you’ll be affected by a global financial crash (mutual credit networks operate on trust which is more localised and verifiable). There’s a widespread belief that the global financial system is in a precarious state – bumping up against limits of various kinds – resource limits, ecological limits, limits to the amount of debt, and limits to the amount of wealth that the financial sector can extract from the real economy (remember that the derivatives market is many times the size of the real economy of goods and services). 2008 was a stumble. If it falls completely, credit commons may be the only safety net.

Mutual credit works well in areas with very little money, and reduces the need for loan sharks. It isn’t a cryptocurrency – doesn’t have the huge energy requirements of Bitcoin, can’t be concentrated in a few hands, and is not prone to speculation.

What’s happened so far?

So far we have obtained expressions of interest from 50+ businesses, been accepted onto the Finance Innovation Lab’s Fellowship Programme and have assembled an advisory group who are helping us develop our plans in the most open and inclusive ways possible. We want to ensure that the governance of the UK Mutual Credit Network is as open and democratic as possible and to ensure that it cannot be captured by venture capitalists, or be exploited by other extractive bodies or processes. If you or your organisation are interested in partnering with us on this project please get in touch.

What happens next?

We want to build mutual credit as a credible, alternative to monopoly issue debt-based money.

Our current plan goes like this:

1. UK businesses submit expressions of interest

2. Once we have enough business registered to make the network viable we will launch our site where you can log in to access your account

3. Businesses can make themselves known – promote your business in the directory to reach new customers

4. Start selling – increase your market share, customer base and revenue.

5. Members who qualify will be provided with an interest-free line of credit in proportion to the amount of goods and services they commit to provide

6. Spend – use credits to purchase what you and your company need

We’ll be working with the Finance Innovation Lab throughout 2019 to develop our ideas and put them into practice. We’re especially interested in recruiting from the co-operative sector initially, as it contains a huge and necessary resource for the scheme to be successful – trust. As we grow, we hope to attract as many small businesses, covering as wide a range of activities as possible.

UK businesses can register their interest via the form here.