This may be true in some theoretical sense, but in practice, it is hard to believe. How would I go around to make the government accept my 20$ and give me some equivalent of that? What could government possibly give me for my 20$?
Dollar bills are for buying things. I could go to a store and buy a bottle of expensive wine for that bill. But I wouldn't say the store owes me.
As an example, British pound notes have the wording "I promise to pay the bearer on demand the sum of five [ten/twenty/fifty] pounds", which dates back to a time when you could actually exchange the notes themselves for gold.
That's a misunderstanding. A $20 bill is the government's liability, not the store's liability. You and a third party are using government liabilities as a currency. Every $20 bill is on the liability side of the central bank's balance sheet. Every entity accepts its own liabilities as a form of payment. Governments issue currency which they then must accept as payment for taxes. Banks issue credit which they then must accept as payment for debt service.
Debt can be money if the legal system is sound. But money doesn't need to be debt if the money issuer is trusted not to debase the currency.
As the book delves into, it may actually be the opposite. A bank borrows the original 20$ from the government. This allows the bank to create a 20$ bank note to be loaned out, and as long the government doesn't demand their money back, it can continue circulating in the economy. The bank notes get traded and becomes the currency, which is how many paper money currencies was created according to the book. The problem arrives then when a single nation has bank notes from several different banks, so in order to solve that problem the government then grants a single bank, let's call it a central bank, the monopoly of borrowing money from the government from which all the other banks then borrow from.
A key point here is that the central bank can not be part of government in this scheme since then it would be the government borrowing money from itself. When people talk about money as an illusion, this is one of the larger aspects to it.
That was true in the days of the gold standard (https://en.wikipedia.org/wiki/Gold_standard), but nowadays, i don’t think it is true anymore.
You can’t bring your 20$ bill to the government and get goods in return whenever you want to make such an exchange.
Also, a lot of money gets created by banks, not the government (in the USA, all the money, I think. Isn’t the Fed independent?)
Interesting, how does that work? Can a bank create money to pay its own taxes? That sounds too convenient...
A bank creates money when it borrows you money that isn’t fully backed by saving account(s). See https://en.m.wikipedia.org/wiki/Fractional-reserve_banking, which, a.o. says:
”Because banks hold reserves in amounts that are less than the amounts of their deposit liabilities, and because the deposit liabilities are considered money in their own right, fractional-reserve banking permits the money supply to grow beyond the amount of the underlying base money originally created by the central bank.”
The amount by which a bank can do that is regulated, and, in the end, under control of the central bank. The central bank won’t be involved in every minor fluctuation of the amount of money in circulation, though.
A pays $100 to B. B keeps $20 and pays $80 to C. C pays $80 to D. D adds $10 of his own money to pay $90 to E. Everyone's debt has been repaid, but only $110 of currency is needed for all these transactions to take place -- assuming all debts are paid in cash. All you need is sufficient liquidity.
I could loan you five quadrillion dollars provided that you also loan me five quadrillion dollars. No currency has changed hands, but we've just increased the world's total outstanding debt by ten quadrillion dollars!
When you have a group of subjects that are indebted to another, separate subject, then it makes sense to calculate the total debt.
Problems really only arise if debt is systemically expected, like a housing market that works only on a foundation of mortgages.