When most people picture “money,” they see paper bills changing hands.
That picture is comforting. It’s also wildly out of date.
In the United States, cash is a minority of what we call money. By the end of 2024, total currency in circulation was about $2.323 trillion. (FRED) Meanwhile, a broad money measure like M2 was about $22.411 trillion as of December 2025. (FRED)
Do the math and cash is roughly 10% of that broad total.
Meaning: most “money” is digital—ledger entries sitting on bank and central-bank balance sheets.
Paper money was never supposed to be “the money”
Originally, paper currency was a receipt.
You deposited something real—typically gold—into a vault. The bank handed you a note that represented a claim. The paper itself wasn’t the value. The asset behind it was.
That basic idea wasn’t uniquely American. For a long stretch of modern history, major currencies were tied—directly or indirectly—to gold under various standards and rulesets.
And then the temptation showed up:
If people trust the paper, they won’t come for the gold.
So more paper claims got issued than there was metal to redeem. Over time, convertibility becomes inconvenient… then “temporary”… then gone.
1971: the gold window closes, and “trust” replaces backing
On August 15, 1971, President Richard Nixon suspended the dollar’s convertibility into gold—an inflection point that helped unravel the Bretton Woods-era system and cement modern fiat money. (Federal Reserve History)
That was widely framed as a temporary emergency measure.
More than five decades later, the global system still runs on the same core fuel: confidence.
How money gets “created” now (and why printing is the sideshow)
Here’s the part that makes people uneasy: in modern economies, most new money is created through credit—especially when commercial banks make loans.
This isn’t fringe commentary; it’s mainstream central-bank explanation. The Bank of England has put it plainly: in the modern economy, the majority of money is created by commercial banks making loans. (Bank of England)
Meanwhile, the Federal Reserve influences the system by setting the conditions under which banking happens (rates, liquidity, collateral frameworks), and by conducting open market operations.
The “Fed just types numbers into a database” claim—what’s true, and what’s sloppy
Yes, at the operational level, modern money moves as accounting entries.
But two clarifications matter:
- The Fed is legally required to buy and sell U.S. Treasury securities in the “open market,” not directly from the U.S. Department of the Treasury (with limited exceptions and special facilities). (Federal Reserve)
- The “database” is real, but the vendor-specific claim (e.g., “an Oracle database”) is usually not verifiable in public documentation. It’s safer—and more accurate—to say “central-bank ledger systems and payment rails.”
So the “truth” is less mystical and more mechanical:
- When the Fed buys securities in the open market, it credits reserve balances (central-bank money) to the banking system.
- Commercial banks, in turn, create most of the spendable money the public interacts with as deposit liabilities, primarily via lending. (Federal Reserve Bank of Chicago)
This is not “printing.” It’s balance-sheet expansion.
The money machine you never see: Fedwire and the silent river of trillions
If you want to understand why cash is mostly theater, look at the plumbing.
The Fed’s large-value payment system, Fedwire Funds, processes staggering amounts of value daily. In 2024, it averaged about $4.51 trillion per day. (FRB Services)
That’s not a pilot project. That’s the backbone of modern settlement—huge values moving between institutions with finality, while you and I are still arguing about whether a $20 bill is “real.”
No physical dollars change hands in those flows.
Just entries.
The hidden cost of a trust-based system: purchasing power evaporation
When money becomes primarily a promise, the system becomes heavily dependent on discipline—political, fiscal, and monetary.
And discipline is the first thing every government eventually “borrows.”
Using CPI-based inflation comparisons, a dollar today buys only a small fraction of what it bought in 1913—roughly about 3 cents on the dollar, i.e., around a 97% loss in purchasing power across that span. (In2013Dollars)
That doesn’t mean the world “ends.” It means something more practical:
- If you hold currency long enough, it tends to shrink.
- If you hold scarce assets (productive businesses, land, energy, metals), you at least have a fighting chance.
In a trust-based system, savers often become the involuntary shock absorbers.
Why this matters now
Once you see money for what it is—a layered stack of ledgers, liabilities, and confidence—you start noticing the real game:
- Policy changes don’t just move “interest rates.” They reprice the entire structure of credit.
- “Stimulus” isn’t just spending. It’s a decision about who receives new purchasing power first.
- “Inflation” isn’t only a number. It’s a distribution mechanism—quiet, constant, and deeply political.
And the oldest truth remains:
When the receipt becomes the money, reality gets optional.
The Invest Offshore take
Paper was never the point. The point was always the asset behind the paper—and the discipline to keep the claim honest.
In a world where “money” is mostly digits and trust, smart capital learns to straddle both realities: use the system’s rails, but anchor long-term value in scarce, productive, and verifiable assets.
Invest Offshore continues to track real-asset opportunities globally, including investment opportunities in West Africa seeking investors for the Copperbelt Region—alongside vetted commodities and infrastructure-linked deals that treat “money” as what it truly is: a claim on future value.
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