What is credit money? What is the credit money system?

Credit money (credit money) is the national law, mandatory circulation is not based on any precious metal to play the function of money independently of the currency. The currencies issued by countries around the world are basically credit currencies. Credit money is provided by the bank credit circulation tools.

Credit money is to credit as a guarantee, through the credit program issued and created money. Credit money is a product of the further development of substitute money, which is now becoming the form of money adopted by almost all countries in the world, and it can be said that credit money is a direct consequence of the collapse of the metal money system

Credit money system, also known as managed paper money standard, is a monetary system in which dishonored banknotes are used as the local currency

Characteristics of credit money system

(1) It uses dishonored paper money as the local currency, which is generally issued by the central bank authorized by the state

(2) dishonored paper money does not represent any precious metal and cannot be exchanged for precious metals such as gold

(3) non-cash settlement dominates

(4) the nature of credit money makes it a requirement that the amount of money in circulation is in line with the demand of the growing economy.

The advantages and disadvantages are due to the same reason that the currency is issued without sufficient precious metals as reserves and is secured only by the credit of the state. (Of course, there is a supervisory unit, but the key time is to supervise the theft, such as the late Republic of China, the indiscriminate issuance of fiat currency, the implementation of the gold coupons) Advantages are obviously the use of leverage can overflow a large amount of (virtual) wealth, the central bank can also be more flexible in the use of monetary policy to regulate the macro-economy. At the same time, once credit is questioned on a wide scale, or due to indiscriminate issuance of money leading to serious inflation. A large bank run, credit money will lack the ability to pay completely, then the currency is bound to depreciate, the national economy will also be hit hard.

As for the future direction of monetary development and evolution, in the current visualization, electronic money is likely to replace credit money to perform monetary functions (developed countries have taken the first step). But there are still many obstacles to the globalization of electronic money, which is essentially a credit currency and has the advantages and disadvantages of credit money.