What are credit money?

credit money refers to money that represents future claims of valuable items against the entity. Credit money holder can use them to buy goods and services; When the holder wants, he can apply it to obtain an item that is supported. Credit money is earned from a material that has a low internal value compared to the value it represents during the exchange. Some types of credit money include iS, bonds and money market accounts. Some people also consider paper money and coins for credit money because they have no internal value and can be exchanged for a valuable commodity.

To illustrate how this concept was created, consider the English goldsmiths who used centuries ago to maintain precious metal deposits. They released paper notes to those who stored gold or silver for future redemption. These goldsmiths realized that they did not have to fully support their notes with precious metals, because only a small part of the holders are returning to convert their notes. The Goldsmiths PotHe has issued insignificant notes such as loans to people who needed funds and received profits from interest payments. These notes were a early form of credit money.

6 Then it sets a stable value on the banknotes and sets them as a medium of exchange. The government may decide to maintain a sufficient valuable commodity to let it apply. The government may also decide to have only so valuable commodities to satisfy a small fraction of people who really want to redeem. In this sense, banknotes are credit money because people can use it to redeem gold or silver.

However, the central bank often issues money that is not supported by a valuable commodity in modern monetary systems. The amount of money in these systems does not depend on the availability of valuable commodities or the central bank obligation to repay the credit money with a valuable commodity. This kind of money is known as Fiat MoNey A is the most ubiquitous form of money in most modern currency systems.

credit money can also refer to any claim for a valuable commodity that is used instead of banknotes as an exchange medium. Examples of this are checks, iS and bonds that can be used for banknotes. Sometimes the credit money has a due date, as in the case of checks where the bank pays the recipient of the check with a certain amount of banknotes at maturity.