Inside money

Inside money is a term in monetary economics, commonly referring to money issued by private intermediaries in the form of debt. In the presence of interest rate differentials, debt issuers can make arbitrage profits by lending short and borrowing long. The money, i.e. the debt that is exchanged in this course is referred to as inside money.

Inside money is thus a liability to the issuer. The net amount of inside money in an economy is zero. At the same time, most money circulating in a modern economy is inside money.