Mutual Credit FAQs

What is a mutual credit system?

Why is it an interesting idea?

Tell me more about the research project

What are the benefits for local enterprises?

What are the benefits to local communities?

Can you give me an example of an exchange or transaction?

How does this facilitate a circular economy?

Are there examples from elsewhere?

 

 

What is a mutual credit system?

Mutual credit is a method of accounting for exchanges within a network of peers where trades are tracked on a shared ledger, requiring no physical cash to change hands. In essence, it's a form of ‘currency’ in which users pay each other using a system of debits and credits, eliminating the need for cash or banks.

The fundamental principles of mutual credit include:

  • When a sale occurs, the seller's account is credited, and the buyer's account is debited

  • The overall balance of the network always equals zero - positive and negative balances offset each other

  • Members have limits on how far they can go into debit or credit, typically based on their productive capacity

  • No interest is charged on positive or negative balances

  • The system requires members to balance buying with selling over time

  • Trade can begin without having to earn credits first

This structure creates a remarkably resilient exchange mechanism that functions effectively even when conventional money is scarce.

Why is it an interesting idea?

Mutual credit systems are simple ways for local businesses and people to trade with each other without needing cash. They have proven very useful in helping communities stay strong, especially when money is tight or difficult to get. They facilitate local trade, retention of materials and resources in use (the ‘circular economy’) and community cohesion.

By encouraging local trading, keeping resources and money within the community, and making sure businesses don’t have to rely on cash, mutual credit networks help trade keep going even when traditional money is hard to come by. This helps communities stay active economically and build wealth right where they live.

 

Tell me more about the research project

The project is led by Dr Juli Huang, Senior Lecturer at University of Edinburgh; in collaboration with Mary Michel, Ostrero, Barry O’kane, Happy Porch and Sarah Bronsdon, Lower Impact Living (Lil). You can contact Dr Juli at juli.huang@ed.ac.uk

1.      What is the purpose of this study?

The purpose of this survey is to map the extent of existing local trade among East Lothian’s social enterprises, circular economy organisations, and other locally owned small businesses. Doing so will help us estimate the social, environmental, and economic benefits of a mutual credit system for Scotland more broadly.  This phase of the project is gathering data from mainly East Lothian based enterprises and using that data to map the exchange network, testing at what scale would a credit system become viable.

2.      Why have I been chosen?

You have been chosen because you are a member of ELCAN, East Lothian SEN, Social Enterprise Scotland and/or Circular Communities Scotland, or you have been sent this link by a member of one of these networks.

3.      Do I have to take part? What will happen if I take part?

Your participation is voluntary and very much appreciated. If you choose to take part, the survey will take approximately 10 minutes of your time. It has three sets of questions. The first section asks about your organisation, the second section asks about your local trading relationships, and the third section asks about any other circular economy activity you may undertake. Any information you give here is kept private – not shared with anyone outside the research study.

4.      What will happen to the results of the research study?

The research has been ethically approved by the University of Edinburgh - School of Social and Political Science (under project 'The new data economies of social enterprise', funded by British Academy / Wolfson Foundation). The responses and the information provided by participants will be used for research purposes. All information will be held in strict confidence and your privacy is ensured. No references will be made in any report which may link the participants to the study or disclose anyone’s identity. There are no known or anticipated risks to the participants of this study.

 

What are the benefits for local enterprises, organisations and businesses?

Mutual credit offers numerous advantages for participating businesses, social enterprises, charities and community groups:

Financial Resilience

  • Provides a parallel purchasing system reducing reliance on conventional money

  • Insulates businesses against cashflow problems and economic downturns

  • Preserves cash reserves by enabling non-cash transactions

  • Offers interest-free credit, which is often difficult and expensive to obtain from banks or difficult to raise cash to repay social investment.

Expanded Market Opportunities

  • Creates new customers and sales leads within the network

  • Allows businesses to sell surplus stock or utilize spare capacity

  • Enables businesses to pay suppliers without money

  • Allows customers to buy from businesses even when conventional money is scarce

  • Increases sales by connecting businesses that might not otherwise trade together

 

What are the benefits to local communities?

Mutual credit systems help communities in many ways:

Keeping Wealth Local

  • Keeps spending power within the local area.

  • Reduces money leaking out of the local economy.

  • Supports local businesses and creates jobs.

Building Trust and Community Spirit

  • Creates trusted networks of local businesses.

  • Encourages relationships based on helping each other, not just making profit.

  • Strengthens community bonds through working together.

  • Promotes cooperation instead of rivalry.

Making Communities Stronger and More Resilient

  • Helps communities survive economic downturns – trade can carry on even when cash is short.

  • Keeps local jobs going during tough times.

  • Shows where new businesses are needed and can help start them.

  • Builds wealth within the community and creates fairer local economies.

  • Supports trade in areas where people are struggling the most.

 

Can you give me an example of an exchange or transaction?

Absolutely! Here’s how mutual credit would work for you as a local small business owner:

Let’s say you run an office equipment shop, and you need a new website. Across town, there’s a web designer who needs a new office chair.

Instead of paying each other with cash, you both join a local mutual credit network—a group of businesses that trade with each other using a shared online account.

Here’s how it works:

  1. You provide the web designer with an office chair worth £200.

    • In the mutual credit system, your account is credited +£200, and the web designer’s account is debited -£200.

  2. Now, you need a new website.

    • The web designer builds your website, also worth £200.

    • Your account goes back to £0, and the web designer’s account goes back to £0.

No cash changes hands, but both of you get what you need.
You didn’t have to wait for extra sales or cash flow—you just traded value directly, tracked by the mutual credit system.

The benefits:

  • You can trade with anyone in the network, not just the web designer.

  • If the web designer doesn’t need office equipment, she can use her credits to get printing, catering, or other services from someone else in the network.

  • The system keeps track of everyone’s balances, so it’s fair and transparent.

In short:
You exchange what you have for what you need, using credits instead of cash, and the network keeps everything running smoothly!

 

How does this facilitate a circular economy?

Mutual credit systems fit very well with the idea of a circular economy, which is all about reducing waste and making the most of what we already have. By connecting enterprises through a system that requires no cash, the network is encouraged to look at their resources and share surplus materials or seek products and materials within the system. Ways in which a mutual credit system can facilitate change include:

Supporting Local Trade

  • Mutual credit encourages people and businesses to buy and sell locally, because the credits you earn can only be spent within the group.

  • This means goods don’t have to travel as far, which cuts down on pollution from transport.

  • It also means things are less likely to go to waste, as they stay within the local area and are reused or recycled.

  • Local businesses get to know and support each other more easily.

Encouraging Sustainable Ways of Working

  • Sometimes, being part of the network means you need to follow certain green or sustainable practices.

  • Credits can be used to reward people and businesses for taking part in things like local recycling.

  • The focus is on creating real value for the community, not just making money for the sake of it.

  • The more businesses trade with each other in a circular way, the better it is for everyone involved.

Changing What We Value

  • Mutual credit puts less importance on money and more on the value people and businesses bring to each other.

  • The system works well without needing to keep growing all the time, because there’s no interest to pay.

  • It encourages us to use what we already have, instead of always taking more from the environment.

  • Overall, it helps create a healthier, fairer local economy that gives back rather than just takes.

 

Are there examples from elsewhere?

Yes. Check out Sardex in Sardinia, Italy. Founded in 2009 in response to the global financial crisis, Sardex has become one of the most successful modern mutual credit networks. Operating on the island of Sardinia (with population similar to Birmingham), it provides:

  • A regional B2B credit circuit primarily serving SMEs

  • No interest on positive or negative balances

  • Credit denominated in Sardex, with 1 Sardex nominally equal to 1 Euro (though not convertible)

  • Vetting of businesses for solidity and creditworthiness

  • Credit lines approximately 1/100 of a business's turnover

  • Maximum positive balances around 1/10 of turnover

  • Business-to-employee (B2E) programs allowing partial salary payment in Sardex

  • Trade volumes reaching 51 million Euros in 2015 (about 0.2% of Sardinian GDP)

  • Over 43 million equivalent Euros worth in trades in 2018

Notably, Sardex demonstrates how a well-designed mutual credit system can scale even in economically challenged regions. Find out more here