P08　The private sector creates money

Merchant credit/Private notes/Banknotes → Bank deposits/Stablecoins

How has the state treated money created by non-state actors?

Four Steps

Similarities

Non-state actors have also created money. The state has repeatedly alternated between incorporating and prohibiting it.

Differences

Banknotes promise convertibility; stablecoins promise reserve assets. Their verification methods differ.

Applications

How to handle money creation by non-state actors is an age-old, recurring question, with answers that vary by era.

Limitations

⚠ When inferring the needlessness of regulation from successful examples of private currency.

These are the four steps for going beyond "it's similar." The "limitations" step defines the point beyond which historical analogies should not be drawn.

Read at the Modern Money Stations

Stations from the textbook "Modern Money: Whose Debt Is It?" where this structure appears. The four steps for each station are not displayed on the screen in the textbook. Here, you can read them side by side.

Central bank money and commercial bank money.

2-04 / Banks　Present. Frankfurt. European Central Bank commentary.

Similarities: The two tiers—money with the state's mark and merchants' bills—are similar to the relationship between bills of exchange and silver coins in the Middle Ages. The upper tier settles the lower tier.
Differences: Medieval bills were backed only by the merchant's credit. Commercial bank money is supported by the bank's assets, regulations, and deposit insurance, and is settled with central bank money.
Applications: When you see the word "money," first distinguish whether it is central bank money or commercial bank money before reading on.
Limitations: Three, eighteen, and seventy-nine are the proportions for the United Kingdom in 2019, and they vary by country and year. The proportions for the Eurozone and Japan cannot be stated at this station.

Finance created outside of banks — Shadow banking

6-03 / Before 2008　1980s–2007 United States

Similarities: The phenomenon of entities appearing outside of regulation to do the same work as banks has existed since the time of goldsmiths and private banks.
Differences: Their scale rivaled that of banks, their funding was raised through overnight repos and MMFs, and they were outside of public guarantees.
Applications: It is neither "safe because it's not a bank" nor "irrelevant because it's not a bank." The question is who will ultimately backstop it.
Limitations: The figures are estimates based on the flow of funds as of 2011 and vary depending on the definition. The report itself notes the limitations of the measurement.

The balance on a transit card: whose liability is it?

8-01 / Digital　Present, Tokyo, Act on Settlement of Funds

Similarities: The form in which value issued by a specific issuer circulates like money within a limited scope is the same as with han-satsu or private notes from shops.
Differences: It is recorded electronically, and the law provides a framework for its definition and protection. The limitation of its scope is determined not by law, but by the issuer's contract.
Applications: When you see a balance, ask three things: who is the issuer, where can it be used, and to what extent is it protected?
Limitations: The standard deposit amount (cabinet order) and the details of protection methods other than deposits (security contracts, trusts) are not covered. The accounting treatment should also be confirmed separately.

The law divides digital money into three boxes

8-03 / Digital　Present, Tokyo, Act on Settlement of Funds, Article 2

Similarities: The role of the law in drawing a line between what is money and what is not is the same as ancient edicts that stipulated the presence or absence of a stamp on metal.
Differences: The criteria for the boundary lie not in the material, but in the nature of the contract and circulation: "whether it is denominated in a currency" and "whether it can be used by unspecified persons."
Applications: When you see a digital asset, check which of the three boxes it falls into according to the legal definition, and then read the risks.
Limitations: The content of the regulations (registration, protection, disclosure) imposed on each box is not covered at this stop.

Stablecoins: whose promise, and of what kind?

8-04 / Digital　July 18, 2025, Washington, GENIUS Act

Similarities: The promise to exchange a receipt for gold at face value has the same structure as the receipts from the age of goldsmiths.
Differences: The backing is not gold but short-term government bonds, repos, and central bank accounts; the law specifies the breakdown and prohibits the payment of interest.
Applications: When you see a stablecoin, check who the issuer is, what backs it, and under which law it operates.
Limitations: The law's effective date, detailed rules from regulatory authorities, and the content of Japan's regulations on electronic payment instruments are not covered.

Reading the backing — opening the disclosure page

8-05 / Digital　August 31, 2026 Boston USDC Reserves

Similarities: The method of gaining trust by disclosing backing is the same concept as when banks began publishing their balance sheets.
Differences: The backing consists of short-term government bonds and repos, with weekly disclosures and monthly attestations, making the frequency an order of magnitude higher.
Applications: When viewing the disclosure page, read the categories, frequency, and attesting party, and treat the amounts as the values for that day.
Limitations: This stop is based on the self-disclosure of one company. It does not evaluate other issuers or the difference between attestation and audit.

P08 The private sector creates money