In its function of facilitating exchange, credit may become the actual medium. An earnest of this was seen in the treatment of subsidiary, fiduciary, or token, coins. A credit medium is more economical than a metallic medium. The expenditure of labor and capital in producing metals for monetary use is a big item of expense for society. Moreover, these metals have industrial uses and the erection of a superstructure of credit on a reserve of metallic money conserves the metal for use in the arts. Since the creation of a credit currency is done with less effort than that of a metallic currency, there is an economic advantage in substituting credit for metallic media wherever possible. Such substitution, though not without danger, is within limits highly beneficial.
Any medium circulates for one or more fundamental reasons. Certain counters may circulate by express or implicit agreement among a limited group, as gamblers' poker chips. It has been shown that commodity money attains and maintains this function because of a belief in the stability and the persistence of social custom. Credit rests upon confidence in the issuer. The issuer may be a government, a corporation, a firm, or an individual; in any case the credit issued will have a more or less extensive circulation, dependent upon the public's opinion of the ability and willingness of the issuer to meet his promises. Credit may be classified, therefore, on the basis of whether or not it has general acceptability. Those forms of credit which do possess general acceptability perform all the functions of money, and usually more efficiently than money.
Media which have only a restricted circulation are: i. Securities (stocks and bonds). These are usually too highly specialized, too technical, too dependent upon market conditions, and too large in denomination to acquire a general circulation. They are, however, quite commonly used in making large payments at great distances, as overseas. Where the expense of shipping gold runs high, securities of international reputation may be used to settle credit balances.
2. Credit instruments, like checks, drafts, promissory notes, acceptances, and the like, which have only a local circulation among a limited circle who know the issuer, drawee, drawer, or acceptor.
Credit media which have a general circulation are:
1. Government issues:
(A) Convertible Metallic Money, As Nickels And Coppers.
(B) Certificates Of Deposit Of Metallic Money.
(C) Convertible Paper Money.
(D) Inconvertible Paper Money.
2. Bank issues:1
(A) Deposits, Represented By Checks.
(B) Bank Notes.
1 The relative degree to which deposits and bank notes enjoy a general circulation will be treated in Chapter V.