His new role as contributor at Forbes provides an excellent outlet to express his views for benefit of the general public with some great perspective on the historical background and current narratives surrounding money.
What Is Money And How Is It Created?
"Three basic conditions that had to be met for something to be called “money”:
a) money has to be a token currency (otherwise it would give rise to barter and not to monetary exchanges);
b) money has to be accepted as a means of final settlement of the transaction (otherwise it would be credit and not money);
c) money must not grant privileges of seignorage to any agent making a payment.
Graziani saw only one way to satisfy those three conditions:
The only way to satisfy those three conditions is to have payments made by means of promises of a third agent, the typical third agent being nowadays a bank......Banks create money by issuing a loan to a borrower; they record the loan as an asset, and the money they deposit in the borrower’s account as a liability. This, in one way, is no different to the way the Federal Reserve creates money... In reality it is simply the nature of a monetary economy: money is simply a third party’s promise to pay which we accept as full payment in exchange for goods. The two main third parties whose promises we accept are the government and the banks.
That’s simply the nature of money: it is not backed by anything physical, and instead relies on trust. Of course that trust can be abused—and frankly that’s done more often by the banks than by the government...- we continue to ignore the main game: what the banks do (for good and for ill) that really drives the economy."