Mutual credit systems have one, serious limitation - the credibility of the 'money' is the average of the credibility of its users and there is no way to enforce the debts which the system requires. If I borrow from a bank and fail to repay, with interest, I am accountable in law for that debt. if the debt is measured in some other unit, such as hours, it has no weight in law. In mutual credit systems, half of all the users should be in debt to the other half, and they rely absolutely on the confidence between the users. This makes them unsuitable for large communities where there is no trust. But it also emphasises that between people that do trust each other, there is no need for the expense of a backed medium of exchange.
The business to business barter (B2B) industry has shown that mutual credit can be a lifesaver for small and large businesses, especially those with liquidity problems. The barter industry, however is in myt opinion rather ossified and in need of better business models, but is by no means a failure.
The most successful mutual credit system is surely the WirBank in Switzerland. Now part of the Swiss establishment, Wir is just B2B but has been running since the depression of the 30s. For the users it is very like national fiat money and is getting more attention these days.
So why do mutual credit systems fail? Mostly, I think, because of poor management and poor design, but some are rumoured to have become obsolete because their users stopped keeping records of their mutual services!
These systems received a boost in the 80s when both Time Banks and LETS became popular. Time Banks were successful enough that some governments adopted them as a strategy for delivering bottom-up social services. However because they required a full-time broker, they were neverintended to be self sustaining; instead they depended on government support which often expired after three years. Nonetheless Time Banks have been real engines for community coherence, and few would argue that they have failed. Note that it can be argued that Time Banks aren't monetary systems, because of their principled insistence that everyone's time is worth the same.
LETS are much more flexible and don't receive outside assistance. They tend to be started by enthusiasts with various ideals. Many LETS have been running for 25 years, although they usually narrow down to a core clique in the suburbs trading massages and haircuts. Though more useful during economic recession, LETS frequently stall because there's little available in the systems which is actually needed. This situation is exacerbated by the income tax laws, which usually state that work done in someone's main profession, is taxable as if the bill had been paid in national currency.
LETS groups rarely grow beyond 150 members, which further limits the availability of goods and services which can be exchanged. While there are ways to trade between mutual credit circles, it doesn't happen properly very often. Either you end up with one big economy, like CES, or the zero balance accounting goes to hell and nobody cares, like the network in France.
Another recurrent problem with LETS is poor management. Such community organisations with no support and hence no accountability are vulnerable to hijack by petty-bureaucrat types. Some groups are held captive for years.
The groups without IT also give vast amounts of time to processing payments and managing the directories. I would wish that LETS groups were more evangelical, but one rarely sees them advertised, even when they are digitised and efficient.
It's clear that currencies with only 150 users have little impact in a globalised economy, but these systems are usually valued not for their economic impact, but for the communities that use them. While the global money system dies, some people are looking for economic alternatives, but others are saying, rightly, that our definition of economy has been too limited, and that we need to value community much more. In that respect we know that mutual credit systems, carefully run, even by amateurs, can be very successful.
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