Interest rate - Price of Credit vs Price of Money

I read somewhere that interest rate as the price of money is wrong but rather it is the price of credit. Can someone elaborate and explain what this means?

Interest rates are not to be directly considered as the price of credit. Instead, they are unequivocally linked to it. This is simply due to how bonds are priced.

$$P = \sum_{n=1}^N \frac{C + M[{I_{n=N}}]}{(1+i)^n}$$

Where $$i$$ is the contractual interest rate, $$C$$ is the coupon payment, $$N$$ is the number of payments, $$I_{n=N}$$ is an indicator function taking the value of $$1$$ when $$n=N$$ is $$true$$ or $$0$$ otherwise, $$P$$ is the market price of the bond, $$M$$ is the value of the bond at maturity.

In a second time, there is a link between money and credit, but indeed, transitively saying that interest rates are "the price of money" is a bit simplistic since it omits a great part of institutional and financial mechanisms.

• Thank you. That was very well put.
– Rumi
Sep 10, 2019 at 13:36