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What's a Letter of Credit? Are funds held in my bank for the amount in question?
Wikipedia has a detailed article explaining this. A standard, commercial letter of credit (LC) is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking. So yes, they are primarily for use by businesses. If you will read the article stating the terms and conditions for payment and shipment you will realize that such model won't be of much value to and will create many hurdles for a typical consumer. Yes, you can cash a letter of credit but only once the conditions in the letter have been met (e.g., delivery/shipment of goods/services). An array of documents need to be presented as well. Whether it is easy or not is a very subjective question.  A bank will issue a letter of credit only when it is reasonably sure that its risk is covered --either backed by a bank deposit or by conditions in the letter itself. Obviously derivatives on these letters have evolved as well.