Finance as credit

Foundation of credit 

'Trust' is the fundamental key, to the credit transactions. Money itself is a form of credit, as the average British note writes ‘I promise to pay the bearer on demand the sum of’. The means that when person A hand person B the note in a form of transaction, with or without him knowing a form of trust is made between him and person A. This idea and monetary fund’s dates back to its origin, which could be considered as gold coins. However, money should not be seen as a commodity. Credit takes this trust to a whole new level, by allowing individuals to spend money which they do not actually own at the current time. Most credits require the borrower to pay back the full amount borrowed plus an interest rate. Domestically this interest rate generally is controlled by a central bank, to insure that rates are neither too high nor too low. The reason it is important for this is form of discipline to be in place, is because credit has a big impact on the economy itself. As it is used fund different form of investments, such as agriculture. This effects both the micro and macro economy. Less government intervention in domestic markets, has led to finance sector working on its own basis. Too much trust, means inefficient loans and these generally to inefficient investments. If the investments fail to make the return which was planned. It is most likely that the borrower will be able to pay back the bank, therefore the trust between the two is broken. All that remains is the contract between the two, which is likely to be taken to court.   

On an international level, this requires trust from both the government and from the global monetary funders. Various international lenders are available, such as the IMF and World Bank. The IMF provide loans for less developed countries, in return for them applying Structural Adjustment Programmes to their policies. This demonstrates that the bank is dependent on the trust that the countries will apply the SAPs to their policies. Therefore, finance as credit is globalised via trust.

Both internally and domestically, the trust required for credit is professional. As it not just down to words rather it is restricted and articulated, on the bases of probability. The probabilities on a domestic level are made from credit checks and the financial situation of the individual. On this basis the bank decides whether the individual or business, should be given a loan, the amount they should receive and the interest rate on the loan. Whereas, on an international level loans are usually given to support development projects or countries in a budget deficit. Originally the Brenton Wood, which gave the theoretical basis for both the IMF and World Bank, supported Keynesianism. This meant they encourage government spending. Coming away from Keynesianism, they now tend to focus on neoliberal policies. Therefore, the decision on the loan will be made on the probability of it stimulating growth within the borrowing country.