I have understood for some time now that by ignoring the currency issuing account or creating other accounts, a mutual credit system can be easily adapted to different sets of needs. As a systems thinker, I like the elegance of zero balance systems where balances add up to zero and there is always exactly the right amount of money. However the fiat approach though a little messier has some interesting different qualities.
Fiat money is created by a central authority which puts it into circulation, usually either by lending it, or by paying people in it. This is beneficial to that authority, which spends it without having to earn it or tax it. Going overdrawn is the exception rather than the rule, which means members must earn money before they spend it. the real difficulty of a fiat system is knowing how much money to print to facilitate transactions, but not decrease the value of the currency.
I recently heard from a British activist of a hybrid idea, the 'eternal fountain'. In theory a mutual credit system should balance its books, but one LETS in North London has been paying its office staff from a delinquent central account for years. The system is flooded with credit, but still works. I'm afraid I cannot support this idea. It smells too much of something for nothing. If the members of that system woke up, or if it got larger or accepted serious members, it would surely not withstand scrutiny. It can only work now, like the fractional reserve system, as long as no-one wants to settle up. For the record I think the eternal fountain is a violation of basic economics, and is consistent with neither mutual credit nor fiat money.
Proposed systems choosing between these two types of issuance need to consider
- How important is a credit facility to the members, against the ability of the committee to spend without taxing?
- How would you calculate and regulate the amount of fiat money in circulation?
- Fiat money usually has a physical form - mutual credit systems work better online.
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