Credit Money: Definition, How It Works, Examples

What Is Credit Money? Credit money is monetary value created as the result of some future obligation or claim. As such, credit money emerges from the extension of credit or issuance of debt. In the modern fractional reserve banking system, commercial banks are able to create credit money by issuing loans in greater amounts than the reserves they hold in their vaults. There are many forms of credit money, such as IOUs, bonds and money markets. Virtually any form of financial instrument that cannot or is not meant to be repaid immediately can be construed as a form of credit money.Key TakeawaysCredit money is the creation of monetary value through the establishment of future claims, obligations, or debts.These claims or debts can be transferred to other parties in exchange for the value embodied in these claims.Fractional reserve banking is a common way that credit money is introduced in modern economies. How Credit Money Works According to recent research done in economic history, anthr...