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The Mutual Credit Currency System, this most radical form of endogenous money, was evaluated and compared with Marx’s Commodity-Money-Commodity requirement. A simple simulation of a small community closed loop economy was used to illustrate the functioning of two types of mutual credit currency systems. The first, dubbed MCSG, behaved according to the specifications and recommendations of the mutual credit currency system’s founding fathers, Riegel and Greco. The second, dubbed the Komoko Monetary System, or abbreviated to KMS, was a sub-type of the mutual credit currency system with some additional restrictions and one additional liberty. The main restriction introduced in the KMS was that it almost exclusively supported the exchange of only newly produced goods and services. The liberty introduced is forecast-based credit allocation. It was shown that the MCSG has an inconsistency that could potentially lead to instability. The restrictions applied within the KMS can provide a remedy for this potential flaw, while at the same time rendering the KMS compliant with Marx’s requirement. The monetary control measures applicable in KMS were discussed, which guarantee robustness and stability and make KMS a true complement to the official fractional reserve banking.
Mutual credit system , Commodity – money – commodity, Cash flow forecast, Currency circuit, Monetary control, Endogenous money
To cite this article: International Journal of Community Currency Research 20 (Summer) 41-53. <www.ijccr.net> ISSN 1325-9547. http://dx.doi.org/10.15133/j.ijccr.2016.003