Commodity credit

Commodity credit is the exchange of a lender's present goods or money for the borrower's promise of payment in future goods or money in which the immediate sacrifice of the lender corresponds exactly to the goods or sum of money received by the borrower. In the case of banks, commodity credit represents loans of banknotes or the extension of demand deposit credit for which the bank holds 100% monetary reserves. In short, the lender forfeits for a time the use or consumption of real wealth which has been transferred to the borrower. Commodity credit contrasts with circulation credit.