Money: What is it?
Money is just an 'idea of value' agreed between people, usually buyer and seller. This includes the buyer and seller of labour.
As we cannot see 'ideas', we use tokens to record this value in agreed 'units': coins, notes and gold bars, or even sticks, shells and clay tablets (and many other forms) in various places, and at various times.
Money has essentially four roles:
It is a Record of value of 'work done/value added' (directly, or indirectly through capital invested)... and not 'consumed'.
It is a Claim by the holder to take out of society the same value they (or their benefactors) have created (less tax).
It is a Promise by society to make good on the claim. It is this promise alone that turns any 'token' into 'money'.
It is a Signal to the market to produce what the holder needs/wants.
Money is valuable not because of the worth of the token, but the fact of the Record. In fact, it is better that the token itself is worthless, so the only function of the token is the record itself. Ideally, this record should be immune from theft and counterfeiting. Ideally too, the unit of record should be stable over time, or be adjusted to reflect constant purchasing power.
It is now possible to construct eMoney that has all these attributes, ie: virtually costless to create and hold, adjusted to maintain its real purchasing power over time, and immune from theft/counterfeiting by encrypting it with the holders own key.
Money: How is it Created and Allocated?
If a person lacks money, they cannot share in what is produced. As importantly, they have no say in what should be produced to meet their needs. The allocation of ‘New Money’ is thus one of the most important functions in the whole economy.
Money can be created and allocated in four ways:
Bank Lending to Borrowers is the usual way. In this case, banks do not lend deposits. They create deposits (money) when they make loans. The process is simple: debit loan account (of borrower) and credit deposit account (of borrower).
Central Bank Buying Securities from Investors, called: Quantitative Easing (To be done only in 'exceptional' circumstances)
In Equal Amounts to all Adult Citizens - sufficient to achieve a balanced labour market. See separate Discussion
For Work Done that has not previously been 'monetised' (eg for 'Learning' work). See separate Discussion
The last two ways are now rarely employed in a modern economy. World2-0 looks at how and why we should include these ways.
Money: How is it Destroyed?
Money is destroyed in four ways:
Repayment of Bank Loans
Central Bank Selling Financial Securities, or Holding to Maturity - and 'writing off' the proceeds
A Flat Rate Tax on all Transactions that are made for Consideration - and writing off the proceeds
A Flat Rate Tax on Specific Purpose Loans to prevent a 'Bubble" (eg for loans on existing buildings) - and writing off the proceeds