Credit

From Encyclopediak

Credit ffrom Latin credere, to trust, a term used in commerce to denote trust, given or received, for future payment or, the mercantile reputation entitling one to be trusted. The credit system presupposes general confidence in people's ability to meet their obligations which, in turn, may be based either upon the honor and ability of the debtor, or upon security deposited as collateral, or both. Examples of the former are tir, sales of retail merchants on open book- accounts of the latter, checks, bills of exchange, notes, mortgages and bond. See NEGOTIABLE PAPER.

The credit system enables a comparatively small amount of money to suffice for a large number of transactions. It is necessary, however, that money shall be immedi ately available upon demand. The development of the credit system is of comparatively recent date, but it is now the means by which, the vast majority of commercial transactions are conducted. This fact makes the modern banking business of great importance in the community. The bank collects scattered and often idle wealth and makes it the basis of credit See MONEY, subhead Credit Money.

The credit of a bank is the confidence which men have in its solvency. By public credit is meant confidence in the ability and disposition of a nation to fulfill its obligations. Sometimes a period is granted during which a debtor may delay meeting his obligations. This is called a moratorium.