Credit money

Credit money is any claim against a physical or legal person that can be used for the purchase of goods and services. Examples of credit money include bank deposits and credit card loans.

During the Crusades in Europe, precious goods would be entrusted to the Roman 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 United States during the Great Depression, trust in bank policies drops very low, and there is the risk of a bank run without government or other intervention. In the United States, the Federal Deposit Insurance Corporation was created in 1933 to prevent bank insolvency from affecting depositors.