Are credit cards, money?, Macroeconomics

It is sometimes asked whether credit cards are money since many purchases are made using these. Credit cards are a means of obtaining credit and using this to finance expenditure, but they are not money. In fact, they substitute for money at the time purchases are made. And payment is ultimately made by movement of bank deposits, initially when the credit card company pays traders, and subsequently when users of credit cards pay the credit company.

Banks can create deposits and if they do so to settle the claims of traders, the use of credit cards can lead to an increase in the money supply. In this sense credit cards function as money only to the extent that credit bills are unpaid. However, unpaid credit bills are not recorded in the official measures of the money supply because it is impossible to calculate the amount of credit outstanding at any moment of time.

Posted Date: 9/18/2012 6:13:24 AM | Location : United States

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