[RobertoG]

Sure, but there is money and there is money.

Banks create an asset in their balance, but they create a liability at the same time. Only governments spending create net financial assets in the economy (that is not the same that real assets, of course).

https://fernandonogueiracosta.files.wordpress.com/2011/08/cu...

(If it's too long, see 'vertical transactions')

[branchless]

Will read this but not sure I'll agree. Banks create money and it is fungible with state tax payment money

http://www.bankofengland.co.uk/research/Pages/workingpapers/...

[RobertoG]

It's a different kind of money, because in a case debt is created and in the other no (even if we use the fiction that it is):

https://pediaview.com/openpedia/Modern_Monetary_Theory#Verti...

http://www.nakedcapitalism.com/2015/01/bill-mitchell-demysti...

(thanks for the link)

[branchless]

I'm going to read these too. I think nakedcapitalism is such a great blog.

I agree one is created as debt which will be destroyed ultimately on repayment. However this is the nub - they create 100 and demand back 110 at a later date, therefore more must be lent in the interim to avoid a deflationary collapse.

[andyspicer]

Don't cryptocurrencies break that model? They are financial assets in the economy that are not created or presently controlled by governments.

[RobertoG]

It depends on your definition of money.

From my point of view, cryptocurrencies are financial assets but not money. They are not an IOU (https://en.wikipedia.org/wiki/IOU).

Government money is a IOU because you are promised that it (and only it) will be accepted as a payment by the state.

Anyway, state money can never be totally replaced at least that the government accept payment taxes in the new currency. And why people would start using other currency if they have to get the official currency for taxes payment?

[branchless]

Agreed. Acceptance for tax payment is what imbues money with value.

[RobertoG]

I read your comments and I think you are missing only a few pieces of the puzzle.

I recommend you to investigate Modern Monetary Theory. It's what made me fill the holes in my understanding (the bigger holes, at least).

[branchless]

I'm familiar with MMT and my understanding is that sites like positive money push this perspective, that banks create money:

http://positivemoney.org/how-money-works/how-banks-create-mo...