Credit Money

Reviewed by Sweta | Updated on Aug 26, 2020

Introduction

Credit money refers to a future monetary claim against an individual who has used the credit facility to buy goods and services. Credit money can be of different types such as the basic IOUs, negotiable instruments, debt instruments and so on.

Understanding Credit Money

Most forms of financial instruments which cannot be or are not meant to be repaid immediately are included in credit money. Credit may be given by an individual or be given as institutional credit. The dues at the level of individual would be small amounts for basic or essential goods and services.

On the other hand, institutional credit would include business loans, overdraft and similar facilities offered to small business enterprises for the day-to-day working capital needs.

Similarly, corporate houses raise money from the public at large through the issue of debt securities such as bonds, debentures, and similar instruments. The debt securities issued by listed corporates are tradeable on stock exchanges.

One of the major sources of credit money across the world is bonds. Bonds are used as a medium both by the governments across the world, and corporations to raise money to meet public expenditures.