A new way to transact without the need for money.
Mutual Credit is a way for people to exchange products or services without the need for money. It's somewhat like barter, except it's more like money.
Alice, Bob, and Charlie each start with a balance of 0 Credits.
Alice gives 5 credits to Bob for his chicken's eggs.
- Alice: -5 Credits
- Bob: +5 Credits
- Charlie: 0 Credits
Bob gives Charlie 5 credits for some of their homemade chocolate cookies.
- Alice: -5 Credits
- Bob: 0 Credits
- Charlie: +5 Credits
In this basic example, neighbors are extending each other a credit line and there is a ledger that records the credits and debits between them. With mutual credit, debt replaces money.
Everyone always begins with a 0 balance of debt/credit and everyone's balances combined will always equal 0. The supply of "money" will always approximate the total value of wealth in the real world, which makes inflation a thing of the past... as long as we can handle debt defaults. Debt defaults and credit limits will be addressed in a further section.
To ensure that the supply of debt in circulation is accurate, we need limits on the amount of debt each person is allowed create. In other words, we need to limit how much they can "borrow" from the credit network.
Although the app currently doesn't implement credit limits, one suitable solution would be to begin with a small limit and then double it whenever that person earns back that amount.
One would start with $20 credit which they are allowed to spend. Their credit limit would then increase to $40 when they are paid +$20.
Other protections may need to be considered, such as to prevent a group of people from "spending and earning" back and forth to inflate their credit limits, without actually exchanging anything.
While intriguing in concept, this app (or mutual credit in general) will need more of a driving force for mass adoption. It works really well for peer-2-peer transactions out of the box, but there will need to be more thought put in for commercial adoption.
Incorporating a marketplace with paid ads (revenues distributed as dividends to the network) might be a must-have feature for mass adoption. Businesses would be able to list themselves and their products or services.
A portion of the sale price specified by the business could be paid in credit. If all businesses in the network can exchange between each other on credit, this would be conducive to a circular economy and would drive economic activity in the event of a downturn.