Credit money

From Academic Kids

Credit money is money that is backed by a promise to pay made by someone other than the state.

Examples of credit money include bank deposits and credit card loans.

During the Crusades in Europe, precious goods would be entrusted to the Catholic Church's Knights Templar, who effectively created a system of modern credit accounts. Over time this system grew into the credit money that we know today, where banks create money by approving loans - although the risk and reserve policies of each national central bank set a limit on this.

Sometimes, as in the U.S.A. during the Great Depression, trust in bank policies drops very low and government must intervene to keep the industry of credit in operation.

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