Credit Money Can Never Have a Circulation That Matches the Circulation of the Natural Monies because of the Risk of Default

As the name says, credit money comes into being when financial instruments are being used in indirect exchanges. Suppose Ben lends 10 oz. of silver to Mike for one year, and that in exchange Mike gives him an IOU (I owe you). Suppose further that this IOU is a paper note with the inscription “I owe to the bearer of this note the sum of 10 oz., payable on January 1, 2010 (signature).” Then Ben could try to use this note as a medium of exchange. This might work if the prospective buyers of the note will also trust Mike's declaration to pay back the credit as promised. If Mike's reputation is good with certain people, then it is likely that these people will accept his note as payment for their goods and services. Mike's IOU then turns into credit money.

Credit money can never have a circulation that matches the circulation of the natural monies. The reason is that it carries the risk of default. Cash exchanges provide immediate control over the physical money. But the issuer of an IOU might go bankrupt, in which case the IOU would be just a slip of paper. 

Not surprisingly, therefore, credit money has reached wider circulation only when the credit was denominated in terms of some commodity money, when the reputation of the issuer was beyond doubt, and when it was the only way to quickly provide the government with the funds needed to conduct large-scale war. This was for example the case with the American Continentals that financed the War of Independence and with the French assignats that financed the wars of the French revolutionaries against the rest of Europe. In the early days, credit money had also been issued in other forms than paper. In particular, IOUs made out of leather have been repeatedly used as money starting in the ninth century.

Credit money is only a derived kind of money. It receives its value from an expected future redemption in some commodity. In this respect it crucially differs from paper money, which is valued for its own sake. 

--Jörg Guido Hülsmann, The Ethics of Money Production (Auburn, AL: Ludwig von Mises Institute, 2008), 28-29.