Mutual Credit System for Wales Underway


As a result of our CEO, Eifion Williams’s Churchill Fellowship study of local currencies in Europe, the Sardex, Sardinia’s Mutual Credit System, is now helping Circular Economy Wales to build and launch a similar initiative in Wales. Lunch was bought here today 29/10/18 in Serramanna, using mutual credit, a form of alternative currency. The electronic system used to facilitate the transaction was great to see in action:


Mutual credit” (sometimes called “multilateral barter” or “credit clearing“) is a term mostly used in the field of complementary currencies to describe a common, usually small scale, endogenous money system.

The term implies that creditors and debtors are the same people lending to each other, but there are several nuances. Some think of mutual credit as a type of currency but this can be problematic because no currency or money is ‘issued’ in the sense that most people would understand it. Cash is very rarely ‘issued’, accounting normally taking place on a ledger, therefore it could also be called ‘ledger money’, a money system, accounting for exchange or credit clearing system. The accounting is explained under multilateral exchange.

Put another way: the Mutual Credit system for Wales, through business to business swapping of goods and services, provides a parallel purchasing and accounting option whereby a business is not solely reliant upon Pound Sterling income to deal with the monthly cashflow to stay afloat. When businesses in Wales have this option in their toolbox, it will provide greater resilience to weather the storm of any current or future economic downturn dictated by global events and financial systems beyond our control.

For anybody uncertain about Circular Economy Wales setting up such an initiative I’d say this: do you want massively fluctuating levels of unemployment as we’ve witnessed cyclically in Wales down the decades, or do you want to back what has worked elsewhere? Sardex in Sardinia stopped hundreds of businesses going to the wall during this world economic downturn. That’s why Circular Economy Wales is working with the Sardinians to bring the best kept secret of business stability to Wales. Wales’s 238,200 businesses employ 1,090.000 people. Let’s keep it that way.

A Mutual Credit system is ‘non-convertible’, i.e you can’t change it for national currency; It could be said even that it complements the monetary system, sitting alongside, by limiting its extreme flaws; especially at a human level. It’s this, above all else, that’s been missing from the current system; a system beyond any doubt that’s in crisis.

Here’s a simple example: you’re running a small business in Wales, let’s say a restaurant. You’re making money but there’s not enough money this month to pay all the bills if you replaced the heating system that has just packed up. It’s December and without heating you’re going to lose customers fast; you’ve got no choice but to invest. If you close, five local jobs will be gone including your own. You speak to the bank, but they won’t lend you the money based because they don’t think they’ll get the money back off you as fast as they’d like. Someone tells you about Wales’s Mutual Credit system that Circular Economy Wales has launched. From the hundreds of small Welsh businesses in the circuit, they tell you that there’s a firm in your locality that can supply you with the heating system. It arrives and it’s installed and you haven’t had to dip into your monetary/pound sterling account. You’ve now got enough to pay your bills, your restaurant stays open.

The heating company have earned 2,000 circuit ‘credits’ for installing the system in your restaurant. This is better than, for example, them coming to eat in your restaurant 100 times for a £20 meal each time in a barter exchange. The system allows spend of the credits anywhere within the Welsh membership of the scheme. Why 2,000 credits? How does the Welsh Mutual Credit system arrive at this arbitrary value. Quite simply, it isn’t arbitrary. The credits are an ‘equivalent’ to the pound value of the goods (the credits are pegged 1-1 to the pound). Remember, mutual credits aren’t convertible to ordinary currency: the unit of account is the same but they can’t be exchanged. They are not tied to (backed by) reserves within national banks or vaults of gold: the debts and credits are only underpinned by the goods and services themselves, the goods and services here in Wales. The heating company we’ve presented here usually sell the heating units for £2,000 so they will be positive +2,000 mutual credits after the transaction, which they can then spend at the same value elsewhere within the membership on any one or more of thousands of goods.

The restaurant owner’s account balance, on the other hand, is now at -2000 credits. He/she will have 12 months to recover the debt, which is towards the circuit rather than towards the heating contractor — hence ‘mutual’ credit. This is done simply by selling meals to other members of the circuit.

Thus, a mutual credit account is designed to fluctuate between credit and debt from day to day: the net result being small businesses getting what they need whilst easing the cashflow challenges for everything else on their balance sheet that has to be done in pounds sterling such as the mortgage, wages, taxes, etc.

As this is a self-contained mutual credit system, sitting outside but parallel to the financial system, it means you’ve spent no money. We’ve swapped goods and kept our finances healthy and overall the net result of the scheme’s activities has helped create a more resilient, productive and potentially more diverse economy. In essence that’s all it is… there’s nothing really here that would scare the horses.

As Paolo Dini from Sardex explained to me,

“a mutual credit system goes back to relationship banking because its effectiveness can be greatly improved by introducing a team of brokers who help supply and demand meet. In the Sardex system, the brokers are employees of the Sardex company and there are no commissions charged on successful brokering events. As a consequence, it easier for the brokers to develop a more personal relationship with the business they look after”.

There are of course huge sustainable development benefits in terms of reducing distribution costs by coordinating local supply chains in this manner. With the help of the brokers, waste in the system can be vastly reduced through synergies in the supply chains, enabling Wales to climb ever closer to its Zero Waste goal. More on the wider sustainable development benefits in a later post!

Before Circular Economy Wales launches the Circular Currency for Wales report, I’ll be visiting similar initiatives this autumn in Catalunya, France, The Netherlands, Germany and Switzerland: drawing on best practice, lessons learned and the most appropriate and practical system for the Welsh context.

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