Holochain Forum

What is a mutual credit currency?

Modern money is often called ‘fiat’ money. The Latin word fiat means ‘let it be’; most money is essentially spoken into existence by banks when they issue loans. It exists as a set of entries in the bank’s ledger: a credit on the borrower’s account and a debit on the bank’s account. This affords banks an immense amount of power over the supply and flow of money.

Mutual credit works similarly from an accounting perspective, but has vastly different consequences for an economy. Each party in the system has their own single ledger that records every exchange they’ve participated in. When two parties agree to exchange something of value, the buyer’s account is debited and the seller’s account is credited by the same amount.

Negative and positive balances can be interpreted in a few different, complementary ways:

  • A negative balance is a ‘debt’, but to the economy at large rather than to any individual. This interpretation is a somewhat negative framing, though, and not popular among mutual credit proponents.
  • Stated in more positive terms, when they go into a negative balance, a buyer is creating their own money, backed by their promise to deliver future value to the economy.
  • Conversely, in choosing to receive a credit from a buyer, a seller can be thought of as accepting the buyer’s money into the system on behalf of the entire economy. This credit then becomes a tradeable promise that anyone can redeem for goods and services that the initial buyer can offer.

Mutual credit tends to be appropriate for community currencies. Often, a local economy falls into a depression not because people don’t have goods and services to exchange, but because there aren’t enough units among them to facilitate trade. This is a major risk of bank-debt money: in controlling the supply, it creates a scarce money. This ends up confusing the money’s dual purposes as a measurement of value and a store of value, which causes supply to stagnate. Mutual credit, as a non-scarce currency, becomes simply a measurement of value.

Bank-debt money also comes with conditions: interest must always be repaid on a loan. That means there will never be enough money in the system, because the bank always asks for more than it’s given. This causes people to either extract value from other places, resulting in ‘externalities’ such as econological destruction and poverty. Mutual credit typically does not carry interest, which keeps value within the system.

Holochain is a great match for building mutual credit currencies because each agent carries their own ‘source chain’, a ledger of actions that they’ve taken. Its local-first design, in which each participant contributes their own computing power and communicates directly with other participants, makes it suited for community currencies, especially in communities that can’t afford server maintenance expertise.


NB: HoloFuel is intended to be our first example of a Holochain-based mutual credit currency, designed specifically for facilitating transactions for web hosting. You can also read more about mutual credit on Holochain in @artbrock’s article Beyond Blockchain: Simple, Scalable Cryptocurrencies. (Note: it was written before Holochain existed, but replace the term ‘Ceptr’ with ‘Holochain’ and it’s pretty applicable.)


A post was split to a new topic: Sovereign money and mutual credit: what about freeloaders?

Thanks Paul - I think that’s a great introductory summary. Some comments to hopefully elaborate.

“Fiat” is “their” money - corporations, banks and gov. (cbag?) - a token for settling taxes basically, that promises to give you the government you (or some others?) pay for. It certainly isn’t your money or mine, as you can tell when you spend it and, as ever, it’s gone and gone for ever. Their money is linear, competitive, extractive, elitist and exploitative. Its form is that of a fictitious commodity, maintained as scarce by privileged issuers, and necessarily creates a rich-poor power system favouring the rich. And there’s very little we can do about that.

Mutual credit is sovereign issue of money that resonates within its network and is always there for redemption by the issuer. It’s truly “our” money and circular by form, function and design. “Our” money is collaborative, cooperative and common. Circular means it comes back to the issuer.

On the “debt” word - it really doesn’t apply here. A debt is an arrangement between two agents - Joe hasn’t yet paid Fred and so still owes something to him. This interpretation is 100% dependent on the idea that m/c isn’t really money.

The core premise of mutual credit as a money is that when Fred accepts Joe’s transfer of co$345 in currency system “xxx” then Joe has paid. Fred is “credited” - he holds promises issued by Joe. Joe has declared his commitment to provide services/goods in the “xxx” community. M/c is money and payment extinguishs debt.

Also, the “credit” word is easily mistaken here. The conventional use of the term means one agent is allowing another to undertake a debt to them - yet another power relationship where the person or business “given credit” is on a hook, generally enforceable by the powers that be there vested.

In m/c, in contrast, Joe acknowledges / values / confers credit on Fred for whatever service or goods Fred has provided to Joe (or maybe a friend of Joe). Credit is a positive mark on Fred’s record. Joe has work to do, if he is to remain credible, and that’s easy if Joe is willing, because the money is there.

There is however a further elaboration of the m/c form that is I think particularly relevant to the holo community.

Historically, m/c has been promoted as system centric. Conventionally, systems are created - timebanks, b2b networks, LETSystems - and people and organisations (business, non-profit, government) join them and become “users” of that currency. This is all very central and patriarchal, with the agents defined as subsidiary parts of some formal or informal corporate entity. This is often workable, indeed can be a required feature - that an authority controls the agents.

What will become more common is that agents recognise and are recognised as sovereign - that there really need NOT be a formal network, any more that using a hashtag on twitter means membership of a formal community.

An agent - person or organization - can better see themselves as accountable individuals earning and spending as though they are in the centre of a vortex, a smoke ring, where their spending into the cloud of others using that currency distributes throughout that cloud and generates demand for their services, their earning. The agent doesn’t know or need to know how it happens, they are responsible for their own business and NOT for that of anyone else. So long as it works for the agent it makes sense to do it; when it doesn’t, when either earning or spending is tiresome or otherwise unproductive of value, the agent reduces (or ceases) use of that channel.

Agents will play in many different smoke rings, as they find fit.

You see how this relates to holo.


Thanks @pauldaoust - this is a much needed conversation. I’m a big fan of mutual credit, and would always advocate them for distributed systems.
I do think there’s different dimensions at play while using them as fundraising instruments since they don’t operate on the same scarcity principles as equity/crypto. They tend to be value stable, and the promise to early backers is a kind of a ‘discount’ rather than low valuations. (Like Holo, as you rightly pointed out)
Just thought I should put this out there since there are a few apps thinking about fundraising models right now, so it would be nice to have a conversation going.


Great concept. Keeping the ledgers transparent will allow community members to support the account with depts and request for services from it. This way creating balanced value through the whole community ecology is possible!


Just read “Utopia for Realists: And how we can get there” and found a great example that happened in May 1970 in Ireland. The bank employees went on strike with a lockdown of about 85% of the country’s reserves. Some quotes from the book:

The result: Nothing much happened at all. The Irish started issuing their own cash. They continued writing checks to one another as usual, the only difference being that they could no longer be cashed at the bank. Instead, that other dealer in liquid assets - the Irish pub - stepped in to fill the void.

In no time, people forged a radically decentralized monetary system with the country’s 11,000 pubs as key nodes and basic trust as its underlying mechanism. By the time the banks finally reopened in November, the Irish printed an incredible GBP 5 billion in homemade currency. They were able to manage so well without banks because of social cohesion.

But of cause there were problems: Companies had problems acquiring capital for big investments.

Question: Would we be able to create something like this as a system to fall back on when the next financial crisis hits us (e.g. in 2020)? Is there something in the works?


Looks like real world m/c is a real thing in China where “businesses are short of cash. Instead, more than $200 billion in i.o.u.s — known in the dry world of finance as commercial acceptance bills — are floating around the Chinese financial system, according to government data.”


Irish Question, Irish Answer

a simple solution, elegant and unplanned.

1 Like

What i really hate is the business guided creation of fiat money( taking a loan from banks with a “so they say” good business plan) , almost the whole human creation is guided by silly business plans, and we can touch the consequences…
i guess we could do much better, many things that don t necessarily brings money , could be bringing real value for life in general, and we don t do it cause of fiat money system… thats silly, and everything is getting sillier with time passing…
Money is liquid will, too important thing to be left to this ridicoulous system.
Our will is getting sick…

1 Like