What Is Credit Money?

Credit money is a currency stipulated by national laws that compulsorily circulates currency that does not function as a currency based on any precious metals. The currencies issued by countries around the world are basically credit currencies. Credit currency is a credit instrument provided by banks. Its value is much lower than its monetary value, and unlike the substitute currency, it is completely decoupled from the precious metal and no longer directly represents any precious metal. In the 1930s, a global economic crisis occurred, causing economic panic and financial chaos, forcing major capitalist countries to separate from the gold standard and the silver standard. Banknotes issued by the country could no longer be exchanged for metal currencies. Therefore, credit currencies should be applied Was born. Almost all countries in the world today use this currency form. ^[1]

Credit currency

Credit currency is with

The most significant feature of credit money is that the value as a commodity is not the same as the value as money.

It is not redeemable, it is only a symbol that must be accepted when it is determined by law that it will pay its debts, ie

In the modern economy, credit currency includes the following main forms:

promissory note

In the commodity credit purchase transaction, the capitalist does not have to pay cash when purchasing a certain commodity, but only needs to issue a debt certificate to the other party to pay the arrears on a regular basis. Upon expiration, the holder can claim the cash from the drawer at the face value. A promissory note that has not yet expired is signed by the creditor to indicate its commitment on the back, and the holder can also use it as a means of purchase or payment to purchase goods or repay debt. In addition, the holder can apply to the bank for discounts on the promissory notes that have not yet expired. The drawee can deduct the interest from the promissory note before the maturity date.

Bank notes

Bank notes generated on the basis of commercial paper circulation and guaranteed by bank credit are also a type of credit currency. Holders can use it instead of metal currency. It has no fixed payment date and can be exchanged for gold at any time; its face value is a fixed integer, which is convenient for circulation; it is guaranteed by gold and bills, and its credit foundation is relatively stable, and it can be circulated within the wide range of bank credit. However, as countries successively abandoned the gold standard and stopped bank notes from being exchanged for gold, capitalist countries generally issued unrealized banknotes as a means of circulation. Paper money is different from bank notes. It is not prepared for commercial paper and gold. It cannot be exchanged for gold. In fact, it cannot be called a credit currency. It is issued under a government decree. Indiscriminate banknotes issued by governments to make up for fiscal deficits often cause inflation.

check

With the development of capitalist banking business, checks have played the role of currency in circulation, becoming the main form of paying debts instead of money and transferring funds between depositors. Before the Second World War, bank checks had become the main credit currency. According to statistics, in 1937, the proportion of demand deposits used to issue checks in the money supply was 81% in the United States, 73% in the United Kingdom, 61% in Japan, and 41% in France. After World War II, bank checks were still the main means of circulation in capitalist countries, accounting for about 90% of the money supply in some countries. It is used as an important payment method not only in the wholesale trade but also in the retail trade. Since the 1960s, in order to strengthen the competitive position of banks and chase high profits, banks have made every effort to improve their banking business, and the scope of use of credit money has expanded.

The use of checks as a payment method can reduce currency circulation and save circulation costs. However, at the stage of economic crisis, due to shrinking production, business closures, bankruptcies, checks often cannot be cashed, which will inevitably affect the normal progress of production and circulation. Therefore, on the one hand, credit currency has a positive role in promoting the development of capitalist economy, and on the other hand, the excessive expansion of the scope of credit currency circulation has increased the possibility of a crisis conceived by currency as a payment method.

Coin

Coins are mostly made of base metals, generally issued exclusively by the government, and minted by special mints. Its main function is to act as an intermediary in small or sporadic transactions.

Paper money

Most of the banknotes are issued by the central bank of a country, and its main function is to undertake people's daily purchases.

Bank savings

Deposit is the depositor's claim on the bank, and to the bank, this currency is the debt currency. In addition to the transfer payment in the bank account, the deposit must also be paid by means of checks. In the economic transactions of the whole society, the proportion of using bank deposits as a payment method accounts for the vast majority. With the development of credit, some small transactions, such as customer payments to retailers and employee salaries, have also widely used this type of currency.

Electronic money

Due to the rapid development of technology and the use of electronic computing technology, currency transactions and payment methods have entered a brand new stage. Electronic money usually uses computers or stored-value cards for financial transactions and payment activities, such as various credit cards, stored-value cards, and electronic wallets. At the same time, the amount of money stored can be replenished by means of a computer connected to the Internet, an ATM or by telephone. This currency is very convenient to use and is constantly being improved and further developed.