Fy I

Credit Cards, might seem natural tot m"

clude credit cards as part of

Debit Cards, the economy's stock of money.

and Money After aM- people use credit cards to make many of their purchases. Aren't credit cards, therefore, a medium of exchange?

Although at first this argument may seem persuasive, credit cards are excluded from all measures of the quantity of money. The reason is that credit cards are not really a method of payment but a method of deferring payment. When you buy a meal with a credit card, the bank that issued the card pays the restaurant what it is due. At a later date, you will have to repay the bank (perhaps with interest). When the time comes to pay your credit card bill, you will probably do so by writing a check against your checking account. The balance in this checking account is part of the economy's stock of money.

Notice that credit cards are very different from debit cards, which automatically withdraw funds from a bank

is this money?

account to pay for items bought. Rather than allowing the user to postpone payment for a purchase, a debit card allows the user immediate access to deposits in a bank account. In this sense, a debit card is more similar to a check than to a credit card. The account balances that lie behind debit cards are included in measures of the quantity of money.

Even though credit cards are not considered a form of money, they are nonetheless important for analyzing the monetary system. People who have credit cards can pay many of their bills all at once at the end of the month, rather than sporadically as they make purchases. As a result, people who have credit cards probably hold less money on average than people who do not have credit cards. Thus, the introduction and increased popularity of credit cards may reduce the amount of money that people choose to hold.

currency is not a particularly good way to hold wealth. Not only can currency be lost or stolen, but it also does not earn interest, whereas a bank deposit does. Thus, most people hold only small amounts of currency. By contrast, criminals may avoid putting their wealth in banks, because a bank deposit gives police a paper trail with which to trace their illegal activities. For criminals, currency may be the best store of value available.

■ QUICK QUIZ: List and describe the three functions of money.

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