Kreditgeld

Kreditgeld refers to money that is created through the process of lending. Unlike commodity money, which has intrinsic value, or representative money, which is backed by a physical commodity like gold, kreditgeld's value is derived from the trust and creditworthiness of the issuer. In modern economies, the vast majority of money is kreditgeld.

When a bank makes a loan, it doesn't typically lend out existing physical currency. Instead, it creates new money in the borrower's account. This new money is a liability for the bank and an asset for the borrower. The total amount of kreditgeld in circulation is influenced by factors such as central bank policies, interest rates, and the overall health of the economy.

The creation of kreditgeld is a key mechanism through which central banks manage the money supply. By adjusting reserve requirements and setting interest rates, they can encourage or discourage lending, thereby influencing economic activity. The inherent risk with kreditgeld is that its value is not tied to a tangible asset, making it susceptible to inflation or deflation if not managed properly. The stability of the banking system and the trust in the currency are therefore crucial for the functioning of kreditgeld economies.