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Correction: The WIR bank in Switzerland is not a mutual credit system!

photo of Michel Bauwens

Michel Bauwens
7th September 2013


Republished from John Rogers:

“We are grateful to Leander Bindewald of the Community Currencies in Action project for bringing an important mistake to our attention.

In the People Money book we wrongly describe WIR Bank, Switzerland, as a ‘mutual credit’ clearing system, that has operated with that mechanism for 79 years since its founding in 1934.

This is not correct. The literature on WIR Bank in German accurately describes it as “a loan granting central bank within a cashless closed system”. In other words, new WIR Francs can only be brought into circulation when traders take loans (backed by personal guarantees) from the WIR Bank itself. They cannot get credit directly from other traders as is the case in business to business exchange systems or LETS.

Mutual credit systems act as third-party record keepers for a community of traders, who issue credit directly to other traders and essentially owe the whole community of traders service in return, rather than any particular individual or ‘the bank’ itself. WIR Bank operates a substantially different model and always has.

Unfortunately, a misunderstanding or assumption about the WIR mechanism arose amongst writers in English on the subject, and this crucial mistake has been repeated by other English language writers ever since. We apologise for our role in propagating this myth further and appeal to others to revise their public presentation of the WIR Bank.

More from Leander Bindewald:

“Two other more recent regional currency projects (City of Nantes in France and Sardex in Sardinia) are sometimes talked about as descendants of WIR (probably due to the same misunderstanding about WIR’s core mechanism) but both projects are REALLY ‘mutual credit’ systems and their constitutions prohibit them from giving loans to business themselves (while 3 party record keeping is OK).

True enough (and interesting enough) to say they were both inspired by the WIR and its dedication to the SME sector and what b2b clearing in the wider sense can accomplish. Nantes presents this on their project’s roadmap pages, and defines Mutual Credit as one possible “clearing”/”chamber de compensation” mechanism in their Glossary.”

Thanks also to Dr. Hugo Godschalk for the following historical background about WIR’s roots:

“The WIR Bank today is still a little bit misty about their own origins. They stated on the website some links to “nordic clearing” at that time (1934), but at that time there were no such systems in Scandinavia with this name. New research shows that the origin of the WIR system was the German Ausgleichskasse (AK), which was exactly the same system as the WIR system after 1934. The WIR-founders copied the idea in Denmark from the JAK Clearing system during two visits in Denmark. Both systems had a license from a sales man from Leipzig who licensed the idea as his own idea after the prohibition of the WIR systems (Ausgleichskassen) in Germany 1934. In December 1934 the WIR founders were obliged to take over the rules and the fees of the licensed system, but they changed some rules in the beginning of 1935 in order to get rid of the expensive license fees. The WIR Bank terminated the legal conflict regarding these license-obligations in the beginning of the 60-ies.

So the WIR system is probably the only survivor of the Ausgleichskassen(AK)-movement which started in Germany in 1931 (or even before in 1926 as research showed recently). The ideological drivers behind the AK were anti-ursury, anti-gold-standard, monetary reform by using the innovation “scriptural money” and pre-keynesian ideas about relief programs based on credit-based money-creation (“productive credit creation”). The original idea (somewhere in the late 20-ties) was to set up a national WIR-system as central bank, but due to the economic crisis, the system was implemented 1931 as a private issued complementary cashless currency. At the end of 1932 we see about 50 WIR-systems allover in Germany, intensively opposed by the German Reichsbank and at least prohibited in the beginning of 1934. The annual reports of some AK in the archives show that these systems were very successful.

The AK-system idea was not only exported to Denmark, Czech Republic and Switzerland but also to Austria. After the prohibition of the paper money in Woergl by the Austrian Central Bank it was very tricky to prohibit these cashless systems by the authorities too. Some of the WIR-systems in Austria were at that time much more successful compared to the Woergl project, but the Austrian Gesellians did not pick up this idea, may be because it was not “gesellian” (demurrage etc.).”

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3 Responses to “Correction: The WIR bank in Switzerland is not a mutual credit system!”

  1. Richard Says:

    I not sure there is a mistake it’s the WIR community that creates and back the credits yes it’s secured against property.
    It is important to follow the source of money and how it is created how it is backed and how it is put into circulation and where it can be spent. WIR is a classic P2P mutual Credit clearing system with a centralised administrator providing governance.

    http://www.swissinfo.ch/eng/business/Cash_substitute_greases_business_wheels.html?cid=7613810

  2. Richard Says:

    http://realcurrencies.wordpress.com/2012/04/19/the-swiss-wir-or-how-to-defeat-the-money-power
    Note: long term loans @ 1% rates for mortgages

    Conclusion
    WIR is a leading example for the entire world. It has proven that interest free mutual credit can be offered on a large scale. Its superior management was a key factor to its success: it was not a couple of dreamers that built it, but down to earth businessmen understanding the issues and the solution.

  3. John Rogers Says:

    Richard Logie, you know better than most what a ‘mutual credit’ system looks like in practice as you have run one for years. So did I. If the term is to have a common meaning, surely it must mean that each individual trader in a community of traders has the power to issue credit to other traders (subject to oversight and possibly credit limits set by the governing ‘bank’) whenever they wish.

    It turns out that WIR is substantially different. New ‘credit’ can ONLY be issued by the WIR bank against personal guarantees just like a conventional bank loan. Currency brought into being by the bank against someone’s existing assets. No individual member trader has that power. So the issuance mechanism is completely different. Once these credits are ‘in circulation’, THEN it looks like a mutual credit system, as the bank simply acts as third-party record-keeper for people exchanging these credits with each other, just as in a B2B exchange network or LETS. But noone can run up a negative balance against ‘all the other members’ collectively, they legally ‘owe’ the entity of the bank itself and must eventually repay it directly. That seems like a different animal to me and we should name it as such.

    WIR is still a pioneering system operating on a scale most other regional currencies can only dream of. Let’s learn what we can from them but be clear about what they really are: a conventional bank issuing loans in two parallel currencies, Swiss francs and WIR francs. In my mind, that does not make them ‘good’ or ‘bad’, just different from what many of us thought they were.

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