Island city rejected old money (3,6)
I believe the answer is:
new guinea
'island' is the definition.
(Pacific island)
'city rejected old money' is the wordplay.
'city' becomes 'wen' (historical term for a large city).
'rejected' says the letters should be written in reverse.
'old money' becomes 'guinea' (historical type of coin).
'wen' backwards is 'new'.
'new'+'guinea'='NEW GUINEA'
(Other definitions for new guinea that I've seen before include "Island in the Western Pacific" , "Pacific island, the world's second largest" , "Papua - - - -" , "divided island" .)