Mutual Credit / Mutual Factoring

Successful Mutual Credit System 

Thrived in Irish Pubs

By Bernard Lietaer and Jacqui Dunne
February 2013


Ireland, during the decade between 1966 and 1976, experienced three separate bank strikes that caused the banks to completely shut down for a total of 12 months, virtually bringing the country to a standstill. It was impossible to cash a check or carry out any banking transaction while the banks’ doors were closed. Consequently, the population of Ireland could not access well over 80 percent of its money supply.

What arose from this seeming disaster was the largest spontaneous nationwide mutual credit system—with the local pubs acting as the center of commerce. Michael Linton commented, “The Irish are an imaginative bunch, and they soon realized if the banks were closed then nothing prohibits writing a check and using this check like cash. So they started writing checks that soon circulated, valued at their face-value, as if they were official money. A check would make the rounds between several people within a circuit facilitating business and people getting on with their daily lives.”

When official bank-issued checks were used up, individuals went to their local stationery shop or news agent for supplies and created their own checks. “Usually a guy would write out a set of checks, written in denominations of fives, tens, twenties, and possibly fifties, because these would be easier to negotiate. The idea caught on quickly. Now, a person from Cork wouldn’t necessarily take a Dublin check and vice versa. It was important in these transactions to know the people with whom you were dealing,” added Linton.

Money Backed by the Full Faith and Credit of Guinness

Employers soon became keenly aware that their employees needed access to cash to cover the critical needs of their daily lives. Some of the large employers, Guinness among others, issued paychecks in various smaller denominations, rather than one check for the entire salary. That way, they could be used as a medium of exchange, just like cash. Linton added, “Employers, particularly the brewers, started giving paychecks to their employees in denominated checks, and those checks became fully accepted at every drinking establishment in Ireland.”

Additionally, full paychecks for the entire amount of one’s wages, especially from trusted employers, could be readily used as an instrument of payment for goods and services. This is reminiscent of the story where the tourist comes to the inn and puts a $100 bill on the counter, and while he’s investigating the accommodations, several townspeople circulate the $100 to pay off their debts. But in this case, the pub owner or local merchant could validate the creditworthiness of the check.

Economics Professor Antoin E. Murphy of Trinity College Dublin reports, “The nature of the economy greatly facilitated the emergence of this new system. The Republic of Ireland had a population of only three million inhabitants. The small size of the population meant that there was a high degree of personal contact amongst members of the community. Where information was lacking at the personal level, a substitute collective information existed in the form of retail shops numbering around 12,000 and that well- known Irish institution, the public house, 11,000 of which exist in the Republic [which yielded] a pub to population ratio of 1:190.”

The close-knit nature of Irish life, even in the cities, meant that shop owners and publicans knew their regular clientele very well. As Murphy put it, “One does not, after all, serve drink to someone for years without discovering something of his liquid resources.”

He continued, “The Irish created an unregulated, totally anarchistic community currency matrix. They were operating on the basis of the Irish pound at the time. But there was nobody in charge and people took the checks they liked and didn’t take the checks they didn’t like. So the whole world just revolved around that simple fact. And, it worked! As soon as the banks opened again, you’re back to fear and deprivation and scarcity. But until that point it had been a wonderful time. High velocity, local circulation, and the pubs as the center of commerce.”

To sum up, the Irish developed a system that enabled them to get on with their lives during a very challenging time, with great success.

According to Murphy’s research, uncleared checks totaled £5 billion when the banks opened again for business. “The direct use of means-of-payment money (bank deposits) was removed from the transaction process. In the absence of this money, exchange activity remained relatively unaffected because the public was prepared to use undated trade credit as the instrument of exchange.”

Another variation of the mutual credit system was used to address a different banking crisis in another decade in another country. In this case, the banks threatened to suspend lines of credit, the lifelines of many businesses. The solution that arose is still in existence today. It is actually a major contributor to that country’s ongoing monetary stability and robustness. It is perhaps surprising to learn that the country where this happened is Switzerland, one of the world’s most economically conservative and stable countries.

This excerpt has been reprinted with permission from Rethinking Money: How New Currencies Turn Scarcity Into Prosperity, published by Berrett-Koehler Publishers, 2013.

Mutual Factoring

Hasan ... would you like to edit this article?

not sure how permanent your slide doc is, here:

ReciPro - Executive Summary

“The commercial credit you offer your customers - is cash for you to pay your bills.”


ReciPro is an invoice clearing service that the country’s public sector will soon provide to the country’s productive sector.  The central bank is implementing ReciPro as part of a broader scheme that includes granting savings and loans cooperatives access to the central bank’s payment and billing network.

ReciPro reinvents some pre-existing mechanisms to create a new form of self-financing for the productive sector.  The main idea is that the “Repo” (Sale and Repurchase Agreement [[1]]) typically used by banks to cover overnight clearinghouse shortfalls, can be used by SMEs (small to medium size enterprises) to cover cash-flow shortfalls resulting from offering commercial credit to customers.  Since, invoices are involved, rather than financial securities, ReciPro also takes ideas from “Factoring” [[2]].

Another mechanism used in a new way is the “Paid Invoices” listing typically required to be attached to VAT declarations.  In this country, where ReciPro originates, the revenue service demands that a complete listing of all invoices paid to suppliers be attached to each monthly VAT declaration. Also to be included is a listing of the total amount billed to each customer each month.  The revenue service facilitates its own data validations and cross-referencing by central control of invoice numbering.

Finally, ReciPro takes ideas from the various complementary and community currency projects that have been springing up around the world, attempting to consolidate their best features while avoiding their pitfalls.  The basis of many complementary and community currency projects is mutual clearing of debts.  ReciPro achieves the same end result, but does so in a way that is readily familiar to anyone who has used online bill payment at their bank.

User Experience

Users who, on average, have greater income from ReciPro participant customers, than outlay to ReciPro participant suppliers will perceive little difference between ReciPro and the bill handling unit of an on-line banking system.  They need to submit payable and receivable invoice data on a nightly basis.  They see that data appear in the form of accounts payable and accounts receivable as, over ensuing hours and days, their suppliers and customers ratify those submissions with matching invoice data from their own records.  As payments come in from customers, they accumulate sufficient balance to pay all bills from suppliers.

Other users, who have a temporary income shortfall, will turn to the Repo facility of ReciPro. This facility performs an internal accounting manoeuvre that is analogous to, but not the same as, a Repo in the financial sector; a cash transaction combined with a forward contract.  In ReciPro, the participant is provided with an accounting balance, in exchange for temporary transfer of ownership (“factoring”) of one or more receivable invoices to the system, while the forward contract ensures return of that balance to ReciPro and return of the receivable invoice to the participant, once the participant’s customer has paid.

The preceding mechanism is the sole source of the internal “virtual tokens” that all members agree to accept as payment of receivable accounts.  The virtual tokens have no tangible existence.  They are merely a “book entry balance” used to create an appearance of fungibility of receivable accounts.  By doing so, they allow seller participants to obtain immediate (“virtual”) liquidity in direct proportion to their willingness to extend (“real”) commercial credit to their customers.

ReciPro is an Internet-based, almost fully automated, closed circuit system which, just as banks never assume responsibility for suppliers receiving payment of their customers in online bill handling systems, never assumes third-party risk.  The only risk factor is non-compliance with the above mentioned “forward contract”.  Compliance is ensured by the third and final major element of ReciPro -- the Savings Fund.  The savings fund is the means by which each participant sets the maximum amount of virtual tokens they can receive through the Repo facility.  By offering savings and loan cooperatives access to the service, to report changes to specially marked accounts, ReciPro allows participants to define dynamically the amount of their savings they wish to reserve as security for their virtual tokens allocation within ReciPro.

At least initially, the total amount issued of virtual tokens will exactly equate to the sum of all participant’s savings.  By means of participant’s compliance performance, revenue service compliance performance and reference to credit rating reports it will be possible to loosen that ceiling, allowing the secured tokens percentage to fall below 100%.

Business rules

ReciPro has a few basic rules in its initial version. They may change in the future.

  1. Tokens allocated as least of three amounts. There are three basic sums under the control of each participant: the sum of receivables, the sum of payables and the sum of savings.  Tokens allocations are limited to the least of these three amounts, according to the following logic: 1) a participant cannot have more tokens than security savings. 2) a participant cannot “repo” more receivables than it possesses 3) a participant does not need more virtual tokens than payables.
  2. Factoring optional.  Re-purchase obligatory.  No individual participant is obligated to resort to the Repo facility, but some participants must do so in order for new virtual tokens to be created. Those who do do so, have a contractual obligation to return the same quantity of tokens at a later date by repurchasing the backing receivables.
  3. No partial factoring.  Receivables must be exchanged for virtual tokens, and repurchased later, in their entirety. This rule may be slackened once participants are sufficiently comfortable with and confident of ReciPro.


Much of the design of ReciPro comes from Todd Boyle’s “General Ledger Dial Tone” concept [[3]].  In the last century it became accepted as normal that the state should make connections available to drinking water, sewage systems, roadways, electricity & telephone to all homes and businesses.  In that sense ReciPro, by sharing information about the debt relationships between participants, provides them with a “liquidity connection”.  Large conglomerate businesses do the same with the many companies they own.  Trading between sister companies is not done on a cash-per-transaction basis. Instead, they settle the net debt of all business units on a periodic basis.  Different units will have high and low income periods at different times of the year; netting of debts provides an economy of scale [[4]]  that allows those with low income to benefit from the liquidity of those in their period of high income.

ReciPro also takes conceptual foundations from the distinction between “credit instruments” and “clearing instruments” as described by Prof. Antal Fekete [[5]]  in, “Detractors of Adam Smith's Real Bills Doctrine” [[6]].  He states, “...  as a matter of merchant custom, producers and distributors would hardly ever pay the producers of higher order goods cash. The terms ‘91 days net’ are standard and part of the deal. It is understood by everyone concerned that the bill will not be paid in full until the underlying merchandise is sold to the final consumer. Yet the supplier can use the bill to pay his own suppliers.”  ReciPro exploits the information agility of the Internet to achieve, at insignificant cost, the “clearing scrip” of medieval fairs, which Fekete describes on page two of that paper.

Copyright 2009, 2010, 2011  Martin “Hasan” Bramwell.

Mutual credit 

is a type of alternative currency in which the currency used in a transaction can be created at the time of the transaction. LETS are mutual credit systems. 
Typically this involves keeping track of each individual's credit or debit balance. 
Although the effect is like a loan, no interest is charged, and since mutual credit allows for trading and cancelling balances with others, debts can be paid off indirectly.

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Mutual aid 

is a term in organization theory used to signify a voluntary reciprocal exchange of resources and services for mutual benefit.

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