0. A system in which the currency necessary to mediate a transaction is created at the time of the transaction as a corresponding credit and debit in the balances of the two parties. These systems, unlike fiat and bank issued currencies, do not require any centralized money supply management. They do require a record keeping system.
1. Anthony Migchels:
"Mutual Credit is just simple bookkeeping. When opening an
account one gets a credit line and can start spending by going into
debt. When doing so, the unit is created. It is so mindblowingly simple
it boggles the mind how the banks have gotten away with their silly
antics for so long.
Mutual Credit is undoubtedly the unit of the not so distant future, although Social Credit may be a good alternative for Government units." (http://realcurrencies.wordpress.com/2012/08/09/a-primer-for-recovering-austrians-the-many-systems-behind-violent-statist-fiat-currencies/)
2. From the Wikipedia:
“Mutual credit is a type of alternative currency in which the currency used in a transaction can be created at the time of the transaction. Local exchange trading systems (LETS) are mutual credit systems. Typically this involves keeping track of each individual's credit or debit balance. Although the effect is like a loan, no interest is charged, and since mutual credit allows for trading and cancelling balances with others, debts can be paid off indirectly.” (Wikipedia - https://en.wikipedia.org/wiki/Mutual_credit)
3. John Rogers:
" I think it is important that we all clarify our meaning of the term mutual Credit. My understanding of the 'mutual' part of mutual credit is that it means that *any* trader has the power to issue or allow credit to any other trader, so long as they meet the requirements of the central trading rules set by the 'bank' (credit limits for instance). This is how 'currency' or medium of exchange is made available to any participant. (from a Facebook posting, 2013)
4. "Drew Little excellently summarizes Tom Greco‘s definition of mutual credit in another Shareable article:
According to Thomas Greco (author & thought leader in
alternative currencies), in a mutual credit system, the members empower
themselves to do the same thing that banks have done for years. Members
create their own money in the form of credit but save the cost of
interest, while distributing the money themselves according to their own
needs. In this type of system, having a positive balance proves that
value has been delivered to the community while a negative balance
indicates that a member has received that much more from the community
than she or he has delivered. A negative balance thus represents a
person’s commitment to deliver that much value to the community sometime
in the near future."
5. Matthew Slater
The simplest expression of mutual credit is an IOU network. A
group of people can trade amongst each other without exchanging a dime,
but just by keeping track of what is owed. It works as long as the
participants return to zero (on average) before leaving the system. The
hallmark of a mutual credit system is that the balances of all the users
should add up to zero – which is to say that when all the debts are
paid off, nobody owes anybody."
with Katalin Hausel:
"Ledgers in banks and other corporations are used to store
promises to pay real money, because promises are easier to track and
transport than physical cash. Users of the ledger agree to settle the
balance at a later date with a single net payment of cash; if at the end
of the accounting period the net balance is close to zero, settlement
is not even necessary and the balance can be carried forward.
While conventional bank credit is created on a balance sheet as
an asset/property, on a ledger the credit between accounts can be
created more as a dynamic relationship between several accounts. This
credit is not minted or printed, it has no physical form and no fixed
quantity. Starting from zero, Alice can pay Bob 10 units. Then Alice’s
account is -10 and Bob’s +10. The total is zero. Bob can pay Carol, and
Carol, Alice. When Alice’s balance is back to zero she can walk away,
having paid and been paid without the hassle of shipping accounting
tokens back and forth in armored vehicles. The stigma of debt does not
apply to short term liquidity loans between trusted traders. It costs
nothing to extend and is not scarce and thus interest does not apply.
More than that, the credit and debit cannot exist without each other, so
how can my credit be your shame?
Using a ledger in this way, as a closed system with accounts
extending credit to each other, is sometimes called mutual credit. This
term focuses not so much on the clearing aspect, but on the fact that
credit can be made available to anyone at any time, and the risk
entailed by that credit is spread out across the whole system. In the
event of an account being abandoned rather than being closed at zero,
the whole system deviates from the perfect zero. Similarly, all members
are affected equally when the total supply and total demand leave
perfect equilibrium. This notion of economic equilibrium is a guiding
principle of a mutual credit economy.
A local currency can build solidarity within the local economy
insofar as it actually diverts spending towards the local economy. But
there is a deeper solidarity within a mutual credit system because the
value of the system depends on the engagement of the members and the
quality of their experiences. The wealth gains that come from good
governance, a glut of production and the well-being of the precarious
members are distributed much more in a mutual credit system than in a
commodity money system, where all the wealth gains are sent to the top
of the pyramid.
This system of mutual credit is ideal for becoming the money of the solidarity economy."