History

Currently, financial systems are governed by banks. They control the money supply and interest rates.

Mutual credit systems started to be exposed as an alternative in the mid-1800s by author William Batchelder Greene in his book “Mutual Banking”.

In the 1930s, WIR Bank was founded in Switzerland as a cooperative association of small to medium-sized, independent Swiss businesses to mobilize their credit potentialities, i.e., without using commercial banks as intermediaries, to facilitate business transactions within their circle. WIR now has about 62.000 members.

In the 1940s, John Maynard Keynes proposed a mutual credit system (International Clearing Union) to establish regulation of currency exchange.

Mutual currencies give individuals the ability to lend money and to get debt by an agreement between two parties, the members of the community that use a mutual currency control the money supply. When two parties perform a transaction, one gets a positive credit and the other party gets the same amount of negative credit. The total credit accumulated by all members is always zero. Mutual credit systems do not manage interest rates.

Mutual currencies have the following characteristics:

1. Decentralization. Members perform transactions in a Peer-To-Peer manner based on trust.

2. Elasticity. The money supply is adjusted depending on the total value created by members.

3. Stable value. The market value of a mutual currency is asset-backed by the products or services the community is giving in exchange for credit.

Mutual credit systems can perform, reasonably well, all of the three classical functions of money, as a store of value, medium of exchange, and unit of account. They are an alternative to current financial systems because they give some advantages like the currency supply is self-regulating--the money supply expands and contracts as needed, without any managing authority. Also, the availability of interest-free loans is a great advantage to members of the system.

Mutual currencies fit very well in groups where people trust each other or where the units produced (products or services) have low market value. In these cases, simple ways of accounting can be implemented. On a large-scale system, where members trade worldwide without knowing each other, a more advanced and elaborated design must be implemented.

From the release of Bitcoin in 2009, new solutions appeared to implement decentralized financial systems at large scale, most of them based on Blockchain technology. All of those systems do not apply mutual credit governance. From a technical perspective, a mutual credit financial system can be implemented in a native way from an agent-oriented approach. In 2017, a project called Holochain was born to build a framework to implement Decentralized Multi-Agent Systems (DMAS). This framework is suitable for implementing ecosystems with mutual currencies economies.