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Nick: By 'money' you mean only a 'medium of exchange' (not unit of account). And by 'medium of exchange' you mean something that is connected to a trade where a non-MoE good changes hands. It could be a good which changes hands, or it could be a intrinsically nearly valueluess piece of paper, or it could be something that takes place in the "accounting realm", without there being anything that is transferred from buyer to seller, or vice versa. Is this correct? What I don't like is that you focus only on a certain aspect of reality and based on likenesses you find between certain things and non-things, you put these together, under the same title, 'money' or 'MoE'. You ignore their differences which seem to be material.

I don't think you answered the question in my comment. You seem to insist that we can say that there exists M in the example I gave. Although there is no M in existence before the transaction ("new monetary system from scratch"). If you are saying that M comes into existence by appearing on both Andy's and Betty's account during the transaction, then how can that M have served as a medium of exchange in this particular transaction? (Can you explain this without relying on imaginative pieces of paper?)

Johan Meriluoto said: "Because it's just paper before circulation.

The bank has no obligation for notes that aren't in circulation. The market price comes from the value of the obligation, not the paper. If you have a note in your pocket where you, yourself, have written something to the effect of "I promise the bearer of this note the sum of X…" there's no obligation for you until you actually issue it to someone."

I agree there is no obligation until some other entity gets the note as its asset. If I write the note so I can borrow $100 and I am creditworthy, I don't see why the note is not valued at $100 in my pocket (fair market value).

TMF: ... Throw your pants in the washer and smudge the ink. Have you now lost $100 so that you're inclined to write it off as a loss in your financial statement?

If the $100 note is in my pocket, is it back on-balance sheet?

Indeed, it's on-off BS due to washing pants... which kind of illuminates the silliness of such accounting principle. Better to account for actual economic transactions.

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