Settlement Assets : The Missing Economic Category in the Theory of Money

Based on a critical review of the leading theories of money, this paper argues that ‘money-like' assets used throughout history to finally settle obligations, including commodities and state-debt, are ‘settlement assets' and that settlement assets should be explicitly recognised as a new and separate economic category alongside money and money of account. Using examples from ancient economies, colonial economies, the development of central banking and the German hyperinflation of the Weimar Republic, it is shown that settlement assets play a critical role in any monetary system and in many instances were represented by assets separate from money. It is demonstrated that settlement assets based on material goods or state-issued debt instruments have the shortcoming that they cannot be elastically created in response to private transaction needs. This has periodically destabilised economies, notably in liquidity crises and in situations where the transaction needs of an economy undergo significant seasonal fluctuations. It is argued that this is one of the reasons why central bank money evolved into the predominant settlement asset. In a case study, it is shown how the creation of a special settlement asset based on a priority charge over land and enterprises helped put an end to the German hyperinflation during the Weimar Republic