Credit Theory

Credit Theory of Money suggests that money’s value comes from the trust and confidence people have in it as a means of exchange and store of value. Rather than being based solely on physical backing like gold, money is accepted because individuals believe others will also accept it in transactions. This collective belief enables money to circulate smoothly, facilitating economic activity. Essentially, the value of money is rooted in social consensus and mutual trust, making it a useful and widely accepted medium of exchange beyond its physical material.