: Mutual-Credit:
start, Seattle July 1, 2003

Why and How the Seattle Community Currency (Full hand-out from Seattle
event July 1, 2003)
Introduction
This is a summary of some of the key points about the Community Currency Project. It covers some basic material about what money is, how a community currency system of the type we envision is different from "normal" money, how mutual credit works, a bit about some of the flaws of the Federal Reserve money system, and what some of the advantages of the community currency are. It also goes into some of the nuts and bolts. But the most important task is of education, which is to say, of achieving a grasp on a surprising, sometimes disturbing, reality of what money really is and how it works.

Money is a subtle thing. We learn about money as a child when we are
not at all capable of understanding it. To a child money is simply a
magical substance that conveys buying power. And since good information about the actual nature of money is not provided even in graduate level business courses, almost all people go through life with little more understanding about the nature of money than a child clinging to a
quarter on his way to the candy store. Economist John Kenneth Galbraith
has called the system by which money is created, "so simple it repels
the mind." And so, whether you are embarking on a short excursion or a
deep exploration into the Matrix of the money system, be prepared for
the challenge of comprehending the mind repelling simplicity of it all.
There are two basic problems inherent in the dominant money system. One is that it is a system owned and controlled by a cartel of private banks that exist for the purpose of delivering wealth to their owners. The
control of credit means that bankers have a great deal of influence over
what happens in the world, because they provide the primary financing.
The money creators decide who has access to the financial capital that
they create. They also control a powerful collection agency called the
IMF, which they call to action when the proceeds of their highly risky
(not to mention harmful) loans to foreign governments get stolen
outright by corrupt leaders and their capitalistic cronies and wasted on
boondoggle projects that yield little to no benefit to the people. The other problem with the so-called national currencies is that they
are loaned into existence at interest. More on this a bit further
ahead. But first, a note on the subject of national currencies that
might jar a few minds into clearer perspective. Banks have employed a
trick that is very similar to a device used by the owners of
professional sports franchises. By branding their teams with the name
of the city where they play, the team owners subliminally trick the
people into identifying with the team in a way that they never would if
the team were called, say, "The Steinbrenner Yankees," or "The AOL/Time
Warner Braves." Something tells me that professional baseball wouldn't
be quite as popular as it is if owners were required to brand their
teams in such a way. And by calling their currencies "US Dollar,"
"Japanese Yen," "Swiss Franc" the banks trick the people into
identifying with the currency branded with their country's name in a way
that they never would if the currency were called, say, the
"Rockefeller/Warburg/Morgan Dollar" or the "Rothschild Pound." Something
tells me that the banking cartel's monopoly on money wouldn't be quite
so entrenched if they were required to brand their currencies in such a
way. In fact the governments themselves might not be so entrenched if
the banks had to brand their currencies in such a way, but that's
another story. Brand management has taken a new tack with the recent
consolidation of the many European labels into one unified trademark,
the Euro.

This gimmick is only one of the tricks that the money cartel uses to
maintain its monolithic position. Another is that they create the
illusion that money is a thing they loan to us. More details about this
coming up, but it seems possible that paper money will be with us longer
than some expect because the material substance of paper notes
reinforces this idea that money is a thing in a way that a paperless all
electronic money system would not. Also, the way in which the Federal
Reserve Board has its secret, behind closed doors meetings (about which
the financial press speculates endlessly) and the way in which its
Chairman, Alan Greenspan, speaks a sort of cryptic kind of language and
poses as an oracle all reinforce a mystical aura around the
mind-repellingly simple illusion of "creating" the product they sell us,
the non-thing called money.

One note: Although this is a harsh critique of both the practices and
the very existence of the money cartel, we are in no way suggesting that
our community currency replace the Federal Reserve money system! It's a
bit too entrenched to just dig out like a noxious weed and toss in the
burn pile. Not just yet. We will probably have to wait for that system
to collapse upon itself before we can be free of it. In the meantime, a
community currency is a complimentary currency, intended to exist
alongside the dominant system and to provide benefits to the community
that the other doesn't. And to be there for us if and when the other
does fail. Through a community currency we can begin to reclaim some of
the sovereignty and self sufficiency that has been imperceptibly given
up through our participation in the highly centralized and hierarchical
bank debt system. That system is designed to extract wealth from
people, communities, regions and whole nations and deliver it to the
people who occupy the position at the top of the pyramid. Our Community
Currency system is designed to empower the people at the base and to
keep our wealth in our own community. What is Money?
Money has been defined as anything which is commonly accepted as a
medium of payment. This definition was more accurate in early times
than it is today because it is only marginally accurate to think of
money as a thing at all. At one time money was typically a form of
valuable commodity such as salt, tobacco, shells, gold or silver.
Later, paper redeemable for the commodity replaced the commodity itself
as the medium of exchange. As it has evolved, money today is simply a
positive number in an accounting system that keeps track of credits and
debits. Money today is a "thing" to the extent that a number on a
computer is a "thing." It could reasonably be said that money is
something that no longer exists.

Mutual Credit

The ability to purchase in return for a promise to pay later is called
credit. Money is a form of credit. The Seattle Community Currency is
envisioned as a Mutual Credit System. Mutual credit means that the
participants in the system issue credit to one another. National
currency money, by contrast, is issued by banks, and could be called
Bank Credit Money. Either way, a monetary system is a way of keeping
track of positive and negative balances in an accounting system.
People and businesses already issue credit to one another as a matter of
routine. For example, a worker issues credit to his or her employer by
agreeing to accept payment for his or her work sometime after it has
been provided. Businesses routinely extend credit to their customers by
giving credit terms, that is, they allow the customer to pay for goods
and services 10, 30 or 90 days after receiving the goods and services.
A mutual credit system is a way of formalizing and expanding upon this
type of arrangement and maximizing its potential benefit to the
community.

As already noted, participants in economic systems routinely issue
credit to one another. Buyers commonly purchase goods on the basis of
IOUs, which are usually executed simply by signing an invoice as
"received." In such an arrangement, the creditor takes all of the risk
of default by the issuer of the IOU. In a mutual credit system, the risk
of default is spread over the entire community of participants and
allows for a greater amount of credit (money) to be issued among the
participants in the system.

Mutual Credit as Money

IOUs between businesses are not normally considered money. They are
referred to as accounts receivable and accounts payable and generally
are not used as media of exchange. Nor are accrued wages considered
money. Mutual credit is a form of money, because in a mutual credit
system the IOUs circulate among the community of issuers and other
users.
How mutual credit money is issued
On day one, everyone in a mutual credit system has a zero balance. When
a purchase occurs, the seller receives a credit to his account, and the
buyer receives a debit. A positive balance is the same as what is
commonly referred to as "money." A negative balance is the same as what
we refer to as "debt." Just as in the Federal Reserve money system,
mutual credit money can take the form of positive account balances or
the form of paper notes. When cash is withdrawn from a bank account,
the balance in the account is decreased, likewise, in a mutual credit
system, paper community currency notes are drawn against a participant's
mutual credit account. In the case of either a bank credit or mutual
credit monetary system, the process of adjusting account balances to
reflect purchases and sales is called "clearing."

How mutual credit money is different from ordinary money
Money issued by the banking system is loaned into existence. Federal
Reserve or banking system money is really much like a brand of money.
This brand enjoys a competitive advantage granted to it by the
government through legal tender laws. Legal tender laws require that we
accept a certain brand of money as payment. The banking companies that
issue this brand of money constitute a legally enforced cartel that
enjoys a virtual monopoly on exchange clearing.

Loan is a misnomer for the act of extending credit performed by banks,
because the word "loan" suggests that some thing is lent. In fact banks
simply authorize a "borrower" to have a negative monetary balance of
their brand of money. Typically they allow for this on the basis of some
asset of the borrower, often requiring that this asset be put up as
collateral. In this case, the bank is monetizing the non-liquid asset
of the borrower, by authorizing the negative monetary balance of this
borrower. Even if the bank is taking virtually no risk there is
nevertheless an interest charge.

If money is loaned into existence by banks it could be said that this
money actually belongs to the banks. When something is borrowed it does not belong to the borrower, it still belongs to the lender. Banks loan
money and charge interest on the money as long as the loan is
outstanding. When bank debts are repaid this money no longer exists.
Somebody somewhere is paying interest on almost every dollar in
existence. This is true of all national currencies.

Mutual credit money is spent, not loaned, into existence. There is
usually no interest charge involved in mutual credit arrangements.
There are still risks and costs associated with mutual credit, but the
whole thing is a lot simpler. But we don't need all of the bells and
whistles, the highly paid executives, big tall buildings and expensive
marketing campaigns that banks employ. So credit in a mutual credit
circle is less expensive.
The balances in a mutual credit system represent obligations of the
members who have taken more than they have given. Another way of
expressing this is in terms of currency rather than in terms of mutual
credit balances is as follows: the currency is an account payable by the
issuer, and represents an account receivable by the holder of the
currency. It's the same. Once again, "money" or "currency" is just a
number in an accounting ledger. The difference between mutual credit and
bank credit money is that one is honest, the other deceptive, and the
other relies upon an authority to do what the one does without an
authority.

A few words about interest

The charges that banks assess on accounts with negative monetary
balances, called interest, are a drain on people and on communities.
These payments are direct transfers of wealth from people with an
insufficiency of money to people with a surplus of it. Interest is one
of the primary mechanisms by which the rich continue getting richer and
the poor poorer. Regardless of the intentions of the people involved,
interest has a profoundly harmful effect on society and works directly
against the interests of social and economic justice.

Because banks loan principal into circulation, but not the interest that
will be charged on the principal, there is an insufficiency of money in
existence to pay off all of the debt. The total amount of money in
circulation is approximately equal to the total of the loans through
which the money was created. People must compete against one another
for scarce money just to pay off their respective debts. Because of
interest, debt tends to increase in an unsustainable exponential
fashion. Tom Greco calls this the engine of destruction, because
production has to escalate in proportion to the debt in order for
everyone to stay in business.

Interest also has a subtle but profound effect on decision making. In
spite of the fact that most people believe that humans should live
sustainably on the planet we continue to plunder and exhaust the stored
reserves of wealth that are our natural heritage. One reason for this
is interest. Interest creates an incentive to turn valuable things into
money, because money earns interest and things do not. So looking
forward one hundred years, the value of a ton of coal, for example, will
be the same as it is today. But that same ton of coal, if mined, sold,
burned and turned into money today will be worth many times more in one hundred years. For example, if the rate of interest that can be
received on the proceeds from the sale of the coal is two percent more
than the rate of inflation, in one hundred years this money will be
worth seven times more than the coal.

Who participates in the Seattle Community Currency?

There will be two types of participants:
1) Issuers
2) Non-issuing participants or Users

An issuer is someone who spends the currency into circulation. In other
words, these are people or businesses that are authorized to have a
negative balance in the mutual credit accounting system. Issuers have
a certain obligation that users do not, namely, they agree to accept the
currency at par as payment for the things that they sell without
limitations, except as agreed to by the community of participants.
A non issuing participant or user is anyone else who voluntarily chooses
to accept and spend the money. A user is not authorized to have a
negative balance in the system. A user is not obligated to accept the
currency at par. A user may accept the currency in partial or full
payment and may offer to accept it at a discount.
What form does the currency have?
Just as with Federal Reserve money, the currency may have one of two
forms: Paper notes and positive account balances. These two forms are
interchangeable.
How are payments made?
Payments may be made in the currency using paper notes if paper notes a
part of the system. Payment systems such as checks or electronic swipe
cards may also be adopted for transferring credits from one account into
another.

Who can issue the currency?

Any person or business that has a good or service for sale, including
labor, is a potential issuer. In order to spend IOUs into circulation
there must be an obvious way that these IOUs can be redeemed. If a
worker's employer does not accept the currency, then there would be no
obvious way for the employee to redeem their issue. So in order to
issue currency, a worker would need to convince his or her employer to
accept the currency so that the worker's obligation to accept the
currency can be fulfilled by his or her being paid with the currency.
Another scenario whereby a worker could issue the currency is if their
employer would agree to trade some Federal Reserve dollars for the CC
notes that could then be used by the employer to pay the employee.

How is the credit limit of an issuer determined?

The maximum negative balance that any entity can spend their account to
is called a credit limit. Another way of expressing this would be to
say that the credit limit is the maximum amount of currency that the
entity can issue There are many possible ways that the participants in
the Seattle Community Currency mutual credit system can determine credit limits. This is a decision that will be made collectively by the group
of issuers. Initially a somewhat arbitrary limit could be set such as
an amount equal to one month's worth of the issuer's revenues. Once the
system is up and running, the credit limit could be determined by the
amount of the currency that each participant is receiving as payment
over a period of time. For example, the credit limit could be equal to
the amount they received in payment over a period of, say, three
months. Some assessment of the solvency of the issuers would need to be
made as well. The services of a neutral third party, such as a
professional banker, could be retained to assist with credit evaluation
and to help determine credit limits based upon criteria agreed to by the
participants. Or the issuer's CPA could make a statement to the effect
that an $X credit limit for the issuer would meet certain criteria
established by the association. For example the issuer could request a
credit limit of, say, $5,000, and the association has defined the credit
limit as the net current account balance of the entity. The CPA could
certify, without anyone in the mutual credit system looking at the books
of the entity, that $5000 was indeed less than or equal to the net
current account balance.
Who do we want as issuers?
One key to the success of the currency will be if the entities that
participants want to buy from using the currency are issuers of the
currency. In other words, the places where people want to spend the
currency are issuers of the currency. Because then, of course, these
desirable participants will be obligated to accept it. Consumers
(people!) buy from retail shops. Retailers buy from wholesalers, and
wholesalers from manufacturers. By the time a currency reaches the
manufacturer it is most likely headed out of town if it is following the
supply chain of materials. Since we want a local currency we want
people, and not just businesses, to be users of the currency. People
want to spend the money at retail shops. So retailers should be
issuers. And of course wholesalers are suppliers to the retailers, so
they too would be desirable issuers. So then how do we keep the money
from working its way up the material supply chain and out of town? By
using it to pay workers! So, it follows that we want employees of local
businesses to be issuers of the currency. Since employees provide work
on credit already, it is perfectly appropriate that they be able to
issue money. If an employee is paid every other week and is paid a few
days after the end of a pay period, then, on average, he or she has
provided about six working days of work without being paid. This asset
(accrued pay) is an obvious candidate for monetization in the community
currency.

To the extent that employees are willing to accept community currency in
partial payment for their work, the system will be healthy. Workers are
the foundation of any local economy. By cycling it through wages the
currency will always be moving back down to the base of the local
economy. If the mutual credit network were strictly used for business
to business transactions, the currency would quickly be moving upstream
toward the out of town suppliers who provide the manufactured goods and basic raw materials that we consume.

It seems reasonable to propose that the larger the portion of the
currency in circulation that is issued by workers, the more robust the
system will be. Having workers who are Issuers will enable any
business to know with certainty that they have a place to spend the
currency. What people need in order to accept the currency is to
know that there is some way they can spend the currency in their normal
course of business.
The advantage for workers who accept the currency is that they will also
have the ability to issue it. The advantage to issuing is this is the
equivalent of an interest free loan. The currency a person issues can
be used to make purchases that would otherwise be made using Federal
Reserve dollars. For the many people who are paying off high interest
credit card balances, the Federal Reserve dollars not spent on the
aforementioned purchases can be used to pay down these balances.
Government as Issuer
Other potential Issuers of the community currency are the city and
county governments. The city could spend the currency into circulation
by using it to pay its employees and suppliers and would redeem their
issue through payments to the city of taxes, permits, city light
charges, etc. Likewise, the county could accept the currency in payment
of bus fares, property taxes and sewage fees. If the city and or county
governments became issuers this would provide them with interest-free
lines of credit from the mutual credit circle. And of course their
participation would provide great benefit to the community whose
interests they exist to serve. If the city and county were participants
the currency system would be all the more robust since now there is a
place where anyone can spend their credits.

The community currency will provide additional liquidity in the
community. Some of this additional liquidity will be used to pay down
debt as described above with the result being a diminishment of the
giant sucking sound of money flowing out of the community in the form of
interest payments. What isn't used to pay down debt will exist as
additional money in circulation locally. The result of this additional
money supply will be an increase in local economic activity. This will
provide for an increase in tax revenues to the local governments.
Another reason our government might want to support our community
currency.

Structure

The structure of the mutual credit association will be determined by the
early adopters. Here are some recommendations that we would make:
The Issuers form a membership association. The members sign an
agreement that they will continue to accept the community currency as
payment with only the minimal limitations they have agreed to among
themselves (such as that a worker's wages cannot be paid in more than
some percentage of the currency). Any Issuer who decides that it no
longer wants to accept the currency must first bring their mutual credit
balance to at least zero either through accepting the currency in
payment for goods or services or through a payment of Federal Reserve
Dollars.

There will be other agreements about how decisions are made, whether by committee or by vote of all members or by an executive chosen by the
members of the issuing group. Decision making authority rests with the
Issuing group, since it is their commitments which are the basis of the
currency system.

Other decisions that will need to be made

Restrictions on who can issue the currency: The recommendation is that
there must be a clear way for the issuer to redeem its promises. If the
person or businesses conducts or is employed by a regular business or
professional service then they can issue currency. It is recommended
that the community currency participants should not allow a publicly
owned corporation to be an Issuer. Of course Wal-Mart can accept and
spend the currency. But it should not be allowed to be an issuer.
Forms of payment media used: Paper currency notes, electronic swipe
card systems, and or checks.

How currency accounts are kept: One scenario is that the currency is
only in the form of paper notes. If the only form of currency balance is
paper notes, then a bank or some other trusted party in the community
could provide the service of being the keeper and dispenser of the
notes. The administrator of the system would advise the keeper of the
notes as to the issuing limit of each Issuer. This would require
businesses to make payments to vendors with paper notes, which presents a barrier. Businesses generally run all of their payment transactions through their checking accounts. If balances are also kept in accounts from which payments can be made by check, this would enable businesses to participate without changing their normal means of payments. Mutual credit balances being kept in accounts from which drafts can be made will require that a local bank provide account keeping and check clearing services. This no-risk service could be provided for a fee and would bring new customers in the door of the participating bank. A card system would entail the services of a payment clearing service provider, and could probably be implemented without the services of a bank.

What businesses will participate?

It will be desirable to build a critical mass of interest on the part of
businesses in the local community before the community currency is
launched. A number of local businesses need to be willing to accept the
currency in order for the system to be robust, and the work to be done
before launching will largely be focused on recruiting merchants'
participation.

The goal will be to have businesses from a broad array of sectors;
retailers of course, but also manufacturers and wholesalers. The more
broad and diverse the businesses the more willing people will be to
accept it. If 200 businesses in Seattle accept the currency there would
be a robust system since the currency could easily hold its value.

Ten Best Reasons to adopt a Community Currency
1. Democratizes the allocation of credit
2. Increases access to credit
3. Reduces the drain of interest
4. Increases money supply and or reduces debt in the community
5. Builds community through the cooperation required in operating a
mutual credit system
6. Increases sovereignty of both the individual and the community
7. Increases awareness of the nature of money and of the dysfunctional
nature of the dominant money system
8. Creates an advantage for local businesses by giving an incentive to
do business locally
9. Helps build momentum toward the goal of decentralization of power.
10. Allows for the fulfillment of financial obligations in-kind rather
than with money.

Subscribe
IJCCR website