In the sense you are using debt" all currency is a system of "IOUs", by design. Even the five pound note you receive in your change is just an IOU that transcends some arbitrary boundaries of time and space whereas a LETs system tends not to cross a space boundary but only a time one.

There's nothing about this idea that would eliminate interest or set it to be zero. Just the interest on CREATING what to all intents and purposes is new money (otherwise how do you account for there only being £43bn pound coins and notes in existence when at any one moment people and businesses in that economy have thirty odd times that in their respective accounts?). Once that money exists, if someone has a surplus of it and wants to lend to someone in need of more for some reason, there's nothing to stop them charging for it in the form of interest.

A bank would become a broker of real money between the one and the other rather than the creator of a majority of it.

And that's the real difference between a Crredit Union and a bank. The credit union can only ever lend out what it has. When did the real house price inflation take off? I'll tell you, in the eighties when building societies were first allowed to securitize their mortgage lending, enabling them to lend more than they had deposited and then when that function was taken over by the banks which simply create it."