Think of it like a home equity loan (HELOC). Let's say you have a $500k home and you take a $250k loan on it and you get cash. You can now spend, save or invest the cash. You don't have to pay interest to a bank either. That's how bitUSD/Smartcoins work.
Banks should require a lot more collateral to create new money, but they don't so there are greater systemic risks in the modern economy.