CreditThis distinction between money and credit causes much confusion in discussions of monetary theory. In lay terms, and when convenient in academic discussion, credit and money are frequently used interchangeably. For example, bank deposits are generally included in summations of the national broad money supply. However, any detailed study of monetary theory needs to recognize the proper distinction between money and credit. Bank notes are a form of credit. Gold-backed bills are likewise also a debt of the bank, a promise to pay in gold. Federal Reserve notes, which are used as money in the United States, are difficult to describe in terms of credit or debt or money. Federal Reserve notes are not a promise to pay in gold, and the notes are irredeemable by the issuer. The Federal Reserve's notes are perhaps viewed best as a political promise to devalue (inflate) at a certain targeted rate. Since Federal Reserve notes are used in the United States as the most common medium of exchange, unit of account, and store of value, they are considered money by the majority of the population. To measure this kind of credit money, various forms of credit are counted together and listed as M1 or M2. M3 was the most common measure of monetary aggregrates, but the publication of M3 was discontinued by the RBA in March, 2006. source: wikipedia.org GNU Free Documentation License |
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