Thought Leadership: Understanding modern money creation

Money may still make the world go ‘round, but it’s not generally the creation of more paper bills or shiny coins that’s fueling the national economy.

In a paper that appears in the latest issue of Rutgers Business Review, finance professor Ahmed Albrolisy describes how the Real Standard provides a modern, disciplined framework for understanding how money – anchored largely by property, human capital or fiscal capacity – influences today’s inflation, economic stability, and growth.

In a series of questions, Professor Albrolisy explains the significance of the Real Standard and why policy makers need to take note. 

What motivated you to introduce the idea of The Real Standard?
I was motivated by a persistent mismatch between how money is commonly taught and how it is created in modern economies. Textbooks and public debates often focus on central banks and money printing, while in practice over 95 percent of purchasing power in the U.S. economy is created through credit, anchored in real economic foundations such as property, income, and fiscal capacity. The Real Standard is a response to that gap, establishing a framework designed to realign our understanding of money creation with how it actually operates.

Is it inevitable that one day money will be digital?
Digitization is likely, but digitization does not resolve the anchoring problem. Whether money is physical or digital, matters far less than what ultimately underwrites its credibility. Even digital money requires trust, governance, and real economic anchors. In that sense, government and trusted institutions remain central. Cryptocurrencies, by contrast, are better understood as speculative and tradable instruments built on expectations rather than as money anchored in taxation capacity, income, or real assets. 

Read Professor Albrolisy’s entire article, “From Gold to the Real Standard: An Anchoring Compass for Real Money Creation” in the latest issue of Rutgers Business Review.

In your article, you propose a reframing of the Federal Reserve. How would that be accomplished?

The article does not argue for institutional redesign or new mandates. It proposes a conceptual reframing. Rather than viewing the Federal Reserve primarily as a direct creator of money, the Real Standard frames it as a manager of anchoring conditions influencing underwriting discipline in credit markets, housing finance, and fiscal credibility, both directly and indirectly. Through its impact on interest rates, collateral values, employment conditions, and sovereign financing costs, the Fed shapes the quality and sustainability of credit creation and helps moderate the cycles that naturally emerge from credit-based systems. Focusing on anchors is therefore inherently a call for proactive rather than reactive policy, strengthening the foundations of credit before imbalances require emergency intervention.

Are policymakers paying enough attention to the importance of current anchors?

No, and this question goes to the heart of the paper. Policy debates tend to focus heavily on tools, aggregates, and short-term interventions, while paying less attention to the strength and composition of the underlying anchors. Yet it is the quality of those anchors, property, human capital, and fiscal capacity that ultimately backs money and determines long-term stability.