Lyn Alden argues that money is fundamentally a ledger recording who owns what. The Bank of England describes how a ledger of IOUs can support exchange within a group whose members trust each other.

Why was gold used as money?

Gold is valuable in its own right, which can help people trust that others will accept it in exchange. Alden argues that gold’s prominence also reflects how little new mining adds relative to the stock already held.

Do banks create money when they lend?

Yes: the Bank of England explains that a bank creates a matching deposit when it makes a loan. In its account, commercial bank lending is the main way new money is created.

Did ending gold convertibility cause inflation?

The Federal Reserve’s history records rising inflation before the August 1971 decision to end dollar convertibility for foreign governments. Later increases in money and prices do not, by themselves, establish causation.

How does financial repression affect savings?

Rules that hold returns below inflation reduce the purchasing power of savings. Reinhart and Sbrancia find that negative real interest rates can erode government debt, transferring resources from savers to the borrower.

What is money?

The Bank of England calls money a social institution that solves a lack of trust. Lyn Alden argues that who controls the ledger of money matters for the purchasing power of savings.

Key points

Lyn Alden argues that money is fundamentally a ledger: a record of who owns what.
The Bank of England says commodity money such as gold, valuable in its own right, can help people be confident they can exchange it for other goods in future.
Banks create most money as deposits when they make loans, according to the Bank of England.
Alden argues that state control of money can enable spending at savers’ expense; the Bank of England says monetary policy limits money creation.
Interest rates below inflation can reduce the real value of government debt and transfer purchasing power from savers to the state.

How can money work as a ledger?

The Bank of England imagines a group in which people mark down in a ledger whether they were in debt or credit in IOUs overall, cancelling obligations against each other. It notes that such systems rely on everyone being confident that everyone else is completely trustworthy.

In medieval Europe, merchants often dealt with one another by issuing IOUs and settling them periodically at fairs by cancelling debts. The Bank of England notes that such systems rely on everyone being confident that everyone else is completely trustworthy.

In Broken Money (2023), Lyn Alden argues that at its core money is a ledger: a record of who owns what. She uses the rai stones of Yap as an illustration: the stones did not move, and an oral record of who owned them was enough because the community was small.

Anthropologist David Graeber argued that credit came before coins and that barter was not money’s starting point. That is his account of money’s origins. For money today, the Bank of England gives a practical definition: an IOU people trust others to accept in exchange for goods and services.

How does money make trade possible between strangers?

The Bank of England calls money a social institution that provides a solution to the problem of a lack of trust: it is useful in exchange because it is an IOU that everyone trusts. David Graeber argued that cash and barter are usually limited to situations of low trust involving strangers or people not considered credit-worthy, while credit dominates among people who know each other.

Goods that are valuable in their own right and used as money are called commodity money, and the Bank of England notes that many societies have used gold this way. Being valuable in its own right can help people be confident they can exchange it for other goods in future. A medium of exchange is something people hold because they plan to swap it for something else, rather than because they want the good itself.

Alden argues that useful money must be divisible, portable, durable, interchangeable, verifiable and scarce. A seller needs to be able to check what they are receiving, and existing holders need protection against rapid additions to supply. She attributes gold’s prominence to the large stock already held compared with the relatively small amount added through mining.

The Bank of England says it is more efficient for people to specialise in production, producing greater amounts of one good than they need themselves and then trading with one another. In its berries-and-fish example, the two can each consume more than if each had split their time between both jobs.

Why did payments move from metal to bank ledgers?

In Lyn Alden's account, payments moved onto bank ledgers because telecommunications could carry instructions much faster than gold could travel. She argues that with the telegraph, and then the telephone, people could transact across the world by updating each other's bank ledgers. Gold and silver, as bearer assets, still moved slowly, so she says they had to be increasingly abstracted into claims to keep up.

The change in communication speed is documented independently of that interpretation. The transatlantic cable of 1866 brought market news across the Atlantic within a day, where ships had taken a week or more. The Federal Reserve also used telegraph wires for large transfers, with a Gold Settlement Fund settling transfers between Reserve Banks from 1915.

Alden argues that banking placed a trusted intermediary between two parties who do not trust each other, so that transactions could be separated from final settlement in gold. She says banks and central banks had full control over the telegraph-era ledger process, which she argues favoured centralised ledgers.

In the United Kingdom, bank deposits made up 97 percent of broad money in December 2013, according to the Bank of England. It describes deposits as essentially IOUs from commercial banks to households and companies, and currency as mostly an IOU from the central bank.

The Bank of England explains that whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower's account. In its words, rather than banks lending out deposits placed with them, the act of lending creates deposits.

What does state control of money make possible?

Lyn Alden argues that once the ledger is a fiat ledger controlled by the state, lawmakers have a flexible public ledger they can use to finance war without taxation and to devalue other people's savings. In Broken Money she says central banking standardises and centralises the national ledger, that the central bank holds all the power over it, and that a central bank can be controlled by the government.

Under the Bretton Woods system established in 1944, other currencies were fixed to the dollar, and the dollar was fixed to gold. On August 15, 1971, President Nixon ended foreign governments’ ability to exchange dollars for gold. Federal Reserve History describes the international monetary system as effectively becoming a fiat system at that point.

Alden argues that a flexible state ledger lets lawmakers finance war without taxation and perform selective bailouts through the devaluation of savings. Separately, the Bank of England says central banks are the only issuer of base money, and that this position is what lets them implement monetary policy.

The Bank of England offers an explicit counterpoint: in its account, monetary policy is the ultimate limit on money creation, and it aims to keep money creation consistent with low and stable inflation. Separately, the Federal Reserve's history says inflation was already on the rise before the 1971 decision.

FRED reports US M2 money stock of $685.5 billion in August 1971 and $23,342.8 billion in August 2026. Over the same dates, the consumer price index rose from 40.7 to 334.131. The pairing shows no causation by itself: it records growth in money and prices, without establishing how much one explains the other.

How does inflation help reduce government debt?

Inflation helps reduce the real value of government debt when the interest paid on that debt stays below inflation. Carmen Reinhart and Belen Sbrancia find that low nominal interest rates reduce debt servicing costs, while negative real rates erode the debt itself in purchasing power terms. For savers holding the debt, the same process is a loss.

The tracker defines financial repression as government rules that steer savings into government debt or hold returns below inflation. Those rules connect the monetary system to public borrowing: savings can finance the state on terms that reduce their purchasing power. Reinhart and Sbrancia describe negative real rates as a transfer from savers to borrowers.

Their research finds that a steady dose of inflation makes repression more effective at reducing debt, even when inflation is not especially high. In their advanced-economy sample, real interest rates were negative roughly half the time during 1945–1980. They estimate average annual debt reduction through negative real rates of 3 to 4 percent of GDP for the United States and United Kingdom.

Alden argues that high debt makes it difficult for policymakers to raise interest rates above inflation. Read that as her explanation of the pressure facing policymakers. The documented mechanism is narrower: when returns are held below inflation, savers lose purchasing power and the real burden of government debt can fall.

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Questions

Is money a ledger?
Lyn Alden argues that money is fundamentally a ledger recording who owns what. The Bank of England describes how a ledger of IOUs can support exchange within a group whose members trust each other.
Why was gold used as money?
Gold is valuable in its own right, which can help people trust that others will accept it in exchange. Alden argues that gold’s prominence also reflects how little new mining adds relative to the stock already held.
Do banks create money when they lend?
Yes: the Bank of England explains that a bank creates a matching deposit when it makes a loan. In its account, commercial bank lending is the main way new money is created.
Did ending gold convertibility cause inflation?
The Federal Reserve’s history records rising inflation before the August 1971 decision to end dollar convertibility for foreign governments. Later increases in money and prices do not, by themselves, establish causation.
How does financial repression affect savings?
Rules that hold returns below inflation reduce the purchasing power of savings. Reinhart and Sbrancia find that negative real interest rates can erode government debt, transferring resources from savers to the borrower.