In this paper, we are trying to better understand the advantage of dispersive money creation method including LETS (Local Exchange Trading System) in comparison with concentrated money creation using computer simulation.

Money usually reminds us of cash or bank notes. But present money is mainly deposit money based on bank credit. It is created when banks make “loans.” Bank notes are monopolistically issued and controlled by central banks. We call such a method of bank note issue ‘concentrated.’ On the other hand, bank credits are created dispersively. We call such a method of creating bank credit money as ‘dispersive’. We classify types of money creation (currency issue) as ‘concentrated’ or ‘dispersive’. Mutual credit clearing association like LETS is thus classified as ‘dispersive’ money creation.

This paper is organized in the following way. First, we give an overview of LETS. Second, we use a random network simulation model to show how the distribution of initial holding money among agents influences the rate of realized transaction under the constraint of money stock.

In conclusion, concentrated money creations need about 17 times more currency buffer than dispersive money creation with or without any constraint of money creation in order to realize the same amount of transactions. The increase in currency buffer, on the other hand, causes the shortage of effective demand. At least, dispersive money creation (mutual credit) is superior to concentrated money creation (bank note issue) in terms of efficiency as medium of exchange.

Nozomi Kichiji and Makoto Nishibe, ‘Characteristic Comparison of Decentralized Currency Issue and Concentrated Currency Issue -Random Network Simulation of Local Exchange Trading System (LETS)’ [in Japanese], The economic study, No.57:1-14.2007.

Makoto Nishibe, ‘What is Money- The possibility of Local Currency [in Japanese]’, Keizai Seminar, No.572:70-78, 2002