Credit money
Credit money is money that is backed by a promise to pay other than that of the state.Examples of credit money: bank deposits, 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 sets 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.
See also:
External references:- Extract from The Theory of Money and Credit, by Ludwig von Mises
- The (Not So) Poor Knights of the Temple -- this has cites for the Templar Banking stuff: are there any authoritative sources?
