[akrymski]

You don't really need to. In IOU systems you extend credit to someone you know, based on ones reputation or credit score. How back in the day your local milk man would just keep a tab of what you owe.

In a way everyone has something to barter: you owe the milk man, your employer owes you. Identities form a web of trust in the physical world.

[djrj477dhsnv]

But how would you eventually reconcile and settle balances?

Would all payments be just non-fungible bilateral agreements? So if I paid the milkman for some milk, but there was no good or service I could later provide to him, he would be unable to take my payment to the butcher to buy some meat (unless the butcher was also willing to enter into a new bilateral agreement with me)?

[akrymski]

Double spending & verifying identities isn't really an issue in a mutual credit system because credit lines are set between trusted parties. You’re replacing an algorithmic double‑spend check with a social credit check.

The butcher would have to trust the milkman in the real world to extend credit to him. At some point the butcher would go to a lender and borrow USD against the IOUs from the milkman. The lender knows the butcher, but can also evaluate the IOUs from the milkman by evaluating who owes the milkman, etc etc. Based on the level of trust the lender has in the butcher (and his IOUs) the lender can lend some hard USD to the butcher, and sell IOUs in exchange for USD to people wanting to join the network.

USD is also not backed by anything, and relies on trust. The important thing is that someone would be prepared to exchange IOU promises for USD/BTC/GLD - market makers. Demand for IOUs comes from people wanting to access the network.

https://news.ycombinator.com/item?id=25506414