6 Money 4.0: The Internet Democratizes Money

The Internet is the great equalizer and disrupter. It gives many people the opportunity to broadcast content to the world the same way big cable companies and radio stations do; allowing anyone access to a variety of information. We literally have the world’s largest library at our fingertips. Everything is becoming digitized. We went from writing letters to writing emails, face to face meetings to videoconferencing, as well as regular phone calls to VOIP.  Now, the web has democratized the very medium that everyone uses to purchase goods and services, money!

As discussed earlier, our national currencies are monopolized by privately-owned central banks. The US Dollar is the product of The Federal Reserve, the Euro is the product of the European Central Bank, and so on. The Banking System controls how much money goes into the economy and how much is taken out. However, the amount of money put in or taken out isn’t dependent on the needs of the people, but on the needs of government and big business. Essentially, everyday people just get the “leftovers” that trickles down to the bottom of the pyramid. This is why a lot of people feel they never have enough money. However, there’s a way to supplement the lack of money circulating in local communities to help people meet their needs: the wonderful creation of mutual credit.

 Mutual Credit

Mutual Credit

Whenever a community of members agree to create and accept their own means of payment, they are creating a mutual credit system. Mutual credit is an alternative currency that is created by people and organizations at the time of a transaction and is backed by the goods and services of people and organizations as well. Essentially, it’s a barter exchange network that uses accounting units or numbers to track who owes what to whom.

Author and thought leader of alternative currencies, Thomas Greco, said this about Mutual Credit:

“The purpose of every mutual credit system is to provide a means of payment that is separate from, and supplemental to, national currency, and that is created not in banks or government but in the community of members.”

Software developer and monetary activist, Matthew Slater, stated in his article:

“The simplest expression of mutual credit is an IOU network. A group of people can trade amongst each other without exchanging a dime, but just by keeping track of what is owed. It works as long as the participants return to zero (on average) before leaving the system. The hallmark of a mutual credit system is that the balances of all the users should add up to zero – which is to say that when all the debts are paid off, nobody owes anybody.”

In this type of system, if a member has a positive balance, it means they have delivered value to the community. Meanwhile, a negative balance indicates that a member has received value from the community and is responsible to deliver that much value to the community sometime in the near future.  In our local communities, we only utilize a small portion of its resources and opportunities. Almost everyone has underutilized knowledge, skills, time, and goods that can be used productively. A lot of businesses have underutilized capacity. Mutual credit is a creative way to utilize this untapped potential. There are already over 3,500 different mutual credit systems operating in countries throughout the world, with some having been in existence 20+ years. Combining mutual credit with online marketplaces and social networks has the potential to create a powerful outlet for collective economic empowerment.

One great thing about mutual credit is that the currency supply is self-regulating, meaning the money supply expands and decreases as needed, without any managing authority. Interest-free credit is a great benefit to members of the system. One downside of mutual credit, as with any form of credit, is the possibility of gaming the system by running up a negative balance and then leaving. This problem can be avoided by putting limits on negative balances which can be raised as balances are paid off.

The Cookie Jar


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An analogy I like to use to describe mutual credit is the “Cookie Jar” example. I like to use it to show how there can be enough money for everyone to take care of their needs. Let’s imagine there was a cookie jar with 5 cookies in it. However, there were 10 people who wanted cookies. How can all 10 have their own cookie? It’s easy. For every cookie they take out of the jar, they have to put two back in – meaning one cookie will replace the one taken earlier and another cookie to pay-it-forward to the next person. In order for this to happen, each person has to become a “baker of cookies” or producer, as well as a “gobbler of cookies,” or a consumer. As I mentioned earlier, a natural organism produces more than it consumes, and a cancer consumes more than it produces. Thus, a business that sells (produces) more than it buys (consumes) is generally a successful company. In a mutual credit marketplace, every member is a seller and a buyer, producer and consumer, or prosumer.

What If The Only Veggies Were Potatoes

Here’s another analogy. Imagine since the day you were born, the only food you ate and were aware of was a vegetable, let’s say potatoes.  Now, also imagine Walmart was granted a monopoly on potatoes by the government and controlled how many were distributed to stores. Furthermore, government declared that growing your own potatoes was illegal. Walmart recognized that by artificially making potatoes scarce, they could sell them at higher prices, but this also meant a lot of people went hungry as well because there wasn’t enough to feed everyone. Then comes along a farmer that learned how to grow lettuce, cucumbers, and broccoli, and informed the people that they could grow and eat these types of veggies too. Best of all, it was legal!  People no longer had to solely depend on potatoes for their livelihood because they had other supplementary options. In this example, Walmart is the Federal Reserve, national currencies, like the dollar, are the potatoes, and the lettuce, cucumbers, and broccoli are mutual credit. By having a diversity of currencies in local communities, we are enabling people to make a variety of exchanges that normally wouldn’t happen. This makes communities more resilient during tough financial times.



Made popular in the 1930’s by German-Argentine economist, Silvio Gesell, demurrage is an effective way to keep money circulating within an economy. It is usually described as the cost of holding money, or a negative interest rate. You can think of it as treating money like food. If food just sits on the shelf and isn’t consumed, it will begin to rot. This currency feature applies the same property to money. If the money isn’t spent within a certain time frame, it begins to lose value. This encourages continuous circulation of a currency and leads to more people gaining access to funds, job creation via capital investments, and a willingness to pay taxes in an earlier time than usual. Some will say this already happens with inflation and this is true. However, inflation is often a hidden tax on the people, applies to everyone at the same time, and often has a negative connotation attached to it. Meanwhile, demurrage is usually known upfront by participants of an economy, only applied on an individual basis, and usually has a positive connotation to it.

The Miracle of Wörgl


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According to historians, mutual credit was used back in Ancient Egypt and Middle Ages. However, one of the most popular use cases occurred in 1932 during The Great Depression in a small town in Austria called Wörgl. The small town had a population of nearly 5000, yet one third were unemployed and about 200 families were bankrupt. It was a desperate situation for the town and they were open to taking an out of the box approach. The mayor of the town, Michael Unterguggenberger, read Silivo Gesell’s book “The Natural Economic Order,” which goes into detail about the circulation of money and how to improve it with demurrage. The mayor needed to do something and decided to give Gesell’s theories a shot. Back then, this type of money was called stamp scrip, which had a holding fee of 1% per month of the money’s value stamped directly onto the paper bills each month. In other words, $100 at the beginning of the year would shrink to $88.64 by the end of the year, compounded monthly, if it wasn’t spent into circulation. This holding fee completely flipped the concept of saving and hoarding money on its head. Why would someone save their money when they know that the more they did, the more it lost its value? This gave people the incentive to spend, lend, and invest the notes as fast as possible with local people and businesses while its value lasted. Local residents even paid their taxes early.

While using the demurraged currency, Wörgl reached full employment, and the speed at which money changed hands was 14 times higher than the national currency, the schilling. This helped keep local businesses operating during such challenging times and brought back the town’s lost jobs. The currency system was working so well that six neighboring towns replicated the system and over 200 more wanted to do the same.

Unfortunately, the Austrian Central Bank didn’t like that its monopoly on money printing was being jeopardized. This resulted in them getting laws passed which shut down Wörgl’s stamp script system. Soon after, unemployment shot back up to 30% and again, Worgl fell back into an economic depression. The same happened to all of the other towns the replicated the system.

From understanding history and seeing how successful demurrage can be, we can’t let central banks get in the way of progress this time around.

Examples of Mutual Credit Systems

Time Banks

Edgar Cahn created the idea for Time Dollars as a new currency to provide a solution to severe cuts in government spending on social welfare. If there was not going to be enough of the dollars to fix all the problems facing our country, he figured why not make a new kind of money to pay people for what needed to be done. Time Dollars value everyone’s contributions equally. One hour equals one service credit.

Here’s an example of how it works: Say you and I were a part of a time bank. You can cook and I can develop websites. You need a website, but don’t have the cash to pay me. It takes me 4 hours to create your website, so you pay me 4 time dollars. Now you owe 4 hours of your cooking skills to other members in the network. This entails a unique twist on bartering with people swapping their time, talents, knowledge, and items using hour time credits instead of dollars. Time dollars have also been ruled as non-taxable on three separate occasions by the IRS. Fortunately, most time banks use open source online software to track transactions.

Time banks are based on the notions that everyone matters and has something of value to offer, some work is beyond price, and reciprocity weaves communities back together. According to an article from U.S. News, there are over 300 time banks around the world, in more than 35 countries. Some have zero or one member, but some have more than 500. The Dane County TimeBank in Madison, Wisconsin has 2,025 members.

Local Exchange Trading Systems (LETS)

Created by Michael Linton in 1983, LETS are similar to time banks, but instead of the currency using time as its unit of account, national currencies fill that role. This makes these types of transactions taxable. So for example, one credit in a LETS network will equal one dollar. The difference between the dollar and a credit in a LETS network is the credit is interest-free. Some LETS utilize printed currencies such as Ithaca Hours, as well as digital currencies.  Community Exchange Systems (CES) have a model similar to LETS but a CES is totally internet-based, meaning they only use digital currencies .

LETS usually have the following features:

  • Self-Sustaining — Supported by community for the community
  • Opt In — People agree to participate
  • Transparency — Information about balances is available to all members
  • Credits are 1 for 1 with national currencies
  • Interest-Free

According to The Complementary Currency Resource Center, there are over 40 LETS operating around the world. According to Wikipedia, there are currently 485 CES groups located in 53 countries, and since 2003 about two and a half million talents (a digital currency) traded, which was about 500,000 South African rands, according to one estimate. Usually, currencies in LETS and CES are not convertible to national currencies.

Business Barter Networks

The International Reciprocal Trade Association (IRTA) is the global trade association for the modern trade and barter industry. According to their website, last year IRTA Member Companies using the “Modern Trade and Barter” process, made it possible for over 400,000 companies worldwide to utilize their excess business capacities and under-performing assets, to earn an estimated $12 Billion dollars in previously lost and wasted revenues. Some of the major players in the barter network industry are International Monetary Systems (IMS) (the largest network in the U.S.), BarterCard (over $1 billion in barter trades each year), and WIR Bank in Switzerland (over $2 billion in barter trades per year). Governments also participate in barter, also know as counter-trade, and exchange trillions worth of goods & services each year.

Other Types of Currency Systems

Local Currencies Backed By National Currencies


According to Wikipedia,”BerkShares is  a local currency that circulates in The Berkshires region of Massachusetts. It was launched September 29, 2006 by BerkShares Inc., with research and development assistance from the New Economics Institute. The BerkShares website lists over 370 businesses in Berkshire County that accept the currency. In 30 months, 2.2 million BerkShares have been issued from 12 branch offices of five local banks.” The difference between this type of currency and mutual credit is that it’s created by purchasing it at a discount; i.e. you pay 95 cents for a Berkshare. It can also be converted back into national currency by going to a local bank that has Berkshares in reserve, and exchanging a Berkshare for 95 cents.

Brixton Pound

The Brixton Pound in South London is a similar type of local currency, however, it can not be converted back to sterling. The currency system has a “Text to Pay” feature as well. The local government in Brixton has also begun to accept the Brixton Pound for taxes and pay a portion of government employees wages in it.

Digital Commodity-Backed Currencies


Bitcoin has become a popular digital currency over the past few years. It was developed by Satoshi Nakamoto in 2009 but he hasn’t been heard from since 2010. The peer to peer digital currency system has no central authority and enables people to make anonymous transactions all over the globe; so it’s great for people who value their privacy. Users can keep Bitcoins in their digital wallets on their computer or on a website which provides management and security. As of this writing, $1,244,671,523 worth of Bitcoins are in existence, with each BitCoin selling at $122.92 USD. People can earn them by buying them on exchanges such as Mt. Gox, earning them by providing services and products to the holders of the currency, and by using a specialized software called Bitcoin Miner. They can be spent by sending them to a person or organization that has a Bitcoin address just like PayPal.

Critics say a drawback of Bitcoin emerged by not having a central authority, because it can be used to make illegal purchases and for money laundering. Additionally, due to its inherent properties as acting as a digital version of gold, it is designed to have a scarce supply and holders have a stronger incentive to accumulate and hoard them instead of spending.  It’s the reason we don’t see a lot of people buying things with gold coins today; during tough economic times, they are meant to be held on to so they can rise in value.


Essentially, Bitcoin’s design is great, but doesn’t solve the interest (accumulation and hoarding) and velocity (circulation) problems. I believe if Bitcoins had demurrage applied to them, the hoarding problem would be solved, and if they were backed by labor, knowledge, and underutilized resources, instead of fiat currencies, that will solve the compound interest problem. A new digital currency called Freicoin, which is similar to Bitcoin, includes the demurrage feature. Time will tell if Freicoins will gain similar traction.


Ven is a global digital currency used by members of a its social network service, Hub Culture. Members trade knowledge, goods and services among each other. Initially, it started out as an application on Facebook in 2007, and in 2008 the currency became tradeable with anyone with an email address, making it the first global online currency to move from an online social network into the real world. It is the first virtual currency to be used in the financial markets and the first used in commodity and carbon credit trading. Ven can be spent at Hub Culture Pavilions or used for online micropayments. The value of Ven is determined on the financial markets from a basket of currencies, commodities and carbon futures. It trades against other major currencies at floating exchange rates.