The Infinite Debt Machine

How tokenisation supercharges credit creation and could pave the way for a programmable, centralised monetary future.

Part 1 – Money “creation” under the current fiat system

The modern fiat money system as it exists in 2026, (and for many decades prior), is structurally dependent on a continually expanding stock of debt. It resembles a pyramid‑shaped monetary architecture that remains stable only so long as the base—new borrowers, rising asset prices, and GDP growth fuelled by credit—expands faster than the interest burden accumulating at the top. When people say “the [national] debt can never be repaid,” they are pointing to a real systemic feature: while individual loans can be repaid, the aggregate system is biased toward perpetual credit expansion. Without it, the money supply contracts and the economy risks deflation, recession, or crisis.

To illustrate the above mechanics, imagine starting from a hypothetical “ground zero” money supply—no one has any money at all. When a bank issues its first “loan” to someone, here is what happens:

1. A £100 loan to person A creates £100 of money in circulation (as bank credit).

2. However, the loan carries £10 of interest, which is not created at the moment of lending.

3. To obtain the £10, someone must borrow new money, meaning new debt must be created to service the interest on the original debt.

This simplified example highlights a structural truth: the system depends on ongoing credit creation to remain liquid. In reality, interest is paid out of existing money stock as it circulates, but if credit growth slows while interest obligations remain, defaults and contraction become likely. This is the dynamic emphasised by economists such as Richard Werner, Steve Keen, Michael Hudson, and others.

More importantly, and critical to understand, is that banks do not “lend out” anyone’s pre‑existing savings when they make “loans” to people. Instead, they create new deposit money when they issue loans—a fact explicitly confirmed by the Bank of England in its 2014 Quarterly Bulletin, which states that “the majority of money in the modern economy is created by commercial banks making loans” and that banks “do not act simply as intermediaries, lending out deposits that savers place with them” Bank of England. The Bundesbank has published similar explanations. This means banks earn interest on money they “create” merely through ledger entries, (numbers on a screen), subject to regulatory capital and liquidity constraints.

The table below accurately captures the public‑facing experience of this system:

Given the above, a bank’s true economic position on most mortgages looks like this:

Parliament and regulators have, of course, been aware of the above mechanics of “money creation” for decades and have chosen to maintain the existing framework. The result is a system in which:

• Private banks are granted the effective privilege of creating most of the money supply as interest‑bearing credit, making them billions.

• They extract decades of interest on that privilege, and hence decades of making billions.

• They can offload much of their associated risk to capital markets, and in systemic crises the residual risk often falls on taxpayers.

• The public is rarely educated about these mechanics in mainstream economics or civics education.

Werner calls the above “credit creation for the private benefit of banks.” Positive Money calls it “debt‑based money creation,” arguing for sovereign money reform. Mainstream economists simply sigh and describe it as the “normal functioning” of fractional‑reserve (or more accurately, credit‑based) banking. But there is nothing “normal” about a system in which a handful of private institutions are permitted to create the vast majority of the world’s money supply by typing numbers into a screen, lend that newly created “money” to the public at interest, and then earn billions in profit while taking on remarkably little real economic risk. Ordinary people must work for decades to repay mortgages, loans, and overdrafts — yet the banks that issued those debts did not have to earn, save, or acquire the money they lent. They simply created it through ledger entries (a bit like dodgy accounting?!). The asymmetry is staggering: the public takes the risk and carries the burden, while the private banking sector captures the upside from money creation itself.

As noted, this fiat + credit‑creation + securitised‑debt system requires a continually expanding stock of new debt to avoid contraction. The mechanics are straightforward:

1. Almost all money in circulation (around 95% in the UK) exists as bank deposits created when banks make loans (Bank of England 2014) Bank of England.

2. Money is destroyed when loans are repaid. Interest is paid out of the existing money stock, but if credit growth slows, the system becomes prone to defaults and recession.

3. Because interest is charged on the entire stock of debt, but interest is not created as new money at the moment of lending, the system is biased toward ongoing credit expansion to remain stable.

Securitisation—and soon, tokenisation (see below)—intensifies this dynamic:

• Banks originate loans → sell them → free up capital → originate more loans → repeat.

• Tokenised loan assets (increasingly feasible by this year) may accelerate this cycle by making loan portfolios easier to trade and fractionalise.

• The system therefore contains a built‑in accelerator for debt creation.

If net new debt creation slows or stops—as in 2008–09, or during periods of falling house prices—then:

• The money supply contracts

• Defaults rise

• The economy enters recession or depression

This is why central banks slash interest rates and deploy quantitative easing whenever credit growth stalls: they are attempting to restart the credit‑creation engine and prevent systemic collapse.

Part 2 — Tokenisation of Assets

Tokenisation means taking a real‑world asset (a house, a bar of gold, a government bond, or even cash) and representing it as a digital token on a blockchain. One token corresponds to ownership of, or a claim on, the underlying asset. These tokens can be traded around the clock, split into tiny fractions, and transferred quickly and cheaply — at least in theory, and subject to regulatory permission.

1. Tokenisation of Government Debt (UK Gilts)

UK government debt takes the form of gilts — IOUs issued by the state. Today, buying and selling gilts involves banks, brokers, settlement systems, and various intermediaries. Tokenisation aims to strip away these frictions.

If gilts are tokenised, anyone with a regulated digital wallet could, in principle, buy £1 or even £0.01 of a gilt instantly from anywhere in the world. This potentially broadens the investor base: pension funds, hedge funds, asset managers, and even retail investors in other continents could access UK government debt as easily as they access digital assets.

Tokenisation could therefore create massive new demand for government debt, although this is not certain, but it definitely lowers barriers to participation and aligns with the UK government’s stated ambition to become a global hub for digital securities.

2. Tokenisation of Gold

The same logic applies to gold. Instead of trading physical bars, issuers can create digital “gold tokens” backed 1:1 by audited gold in vaults. These tokens can then be used as collateral in trading systems or DeFi‑style protocols, where permitted. The key is that the legal claim to the underlying gold must be enforceable — something that varies by issuer and jurisdiction.

3. Stablecoins — The Bridge Between Fiat and Crypto

A stablecoin is a digital token designed to maintain a fixed value relative to a currency (e.g., £1, $1, €1).

Examples include USDC, USDT, and institution‑issued tokens such as AUDN or EUR CoinVertible. Regulators in the UK, EU, and elsewhere are now insisting that major stablecoin issuers hold their reserves in ultra‑safe assets — primarily short‑term government debt and central‑bank money. This means that large stablecoin issuers are being pushed into becoming major buyers of government bonds. As stablecoins scale into the hundreds of billions, their reserve requirements could become a structural source of demand for gilts, Treasuries, and other sovereign debt.

Put the above pieces together and you get a “magic feedback loop” that governments love:

• Stablecoin issuers need safe assets to back their tokens.

• Regulators require those assets to be government debt.

• Tokenised gilts make it easier to integrate those assets into digital financial systems.

• More buyers = higher gilt prices = lower borrowing costs for the government.

• Lower borrowing costs = governments can run deficits more cheaply.

In short: tokenisation + stablecoin regulation = a new, structural demand engine for government debt.

The Bigger Vision: The “Unified Ledger”

The Bank for International Settlements (BIS) and the Bank of England have openly discussed, and are working hard towards, a future “unified ledger” — a single, integrated digital infrastructure where:

• Central bank money (a digital pound)

• Tokenised commercial bank deposits

• Tokenised government bonds

• Tokenised real‑world assets (gold, securities, etc.)

…all coexist and settle instantly via “atomic settlement”.

This is presented as efficiency and innovation. But the deeper reality is that such a system is permissioned, centralised, and tightly controlled. It is the opposite of the open, decentralised ethos that early blockchain advocates imagined.

Under such a model, whilst retail banks would not disappear, their roles would shrink, as under the BIS vision they would become:

• Mortgage factories

• Regulated on‑ramps/off‑ramps between fiat, stablecoins, and CBDC

• Wealth managers for customers who don’t want to manage private keys

• Providers of SME credit that is harder to automate

The profitable parts of banking — payments, settlement, custody — would migrate into the unified ledger.

The Bottom Line: A Centralised Digital Currency System Is Not Neutral

The unified ledger is, of course, marketed as efficiency, (I am genuinely surprised the words “safe and effective”, or “for your security and convenience” haven’t been bandied about yet). However, in its centralised form, it is a permissioned, programmable, centrally controlled monetary system. And programmability cuts both ways. A centralised digital currency (CBDC) or tokenised deposit system could enable:

• Expiry dates on money - Authorities could issue stimulus with a “use by” date to force spending.

• Geo‑fencing of transactions -Money could be restricted to certain locations — e.g., cannot be spent outside your city, region, or country.

• Purchase restrictions - Programmable rules could prohibit spending on certain categories (e.g., alcohol, travel, “high‑carbon” goods) or enforce rationing.

• Social‑credit‑style conditionality -Access to funds could be linked to compliance with rules, behaviours, or identity verification.

• Automatic tax collection and deductions -Taxes, fines, or fees could be deducted at source, without recourse.

• Negative interest rates or forced velocity -Money could be programmed to lose value if not spent quickly enough.

• Real‑time financial surveillance -Every transaction could be visible to central authorities, with no meaningful privacy.

None of these features are inherent to tokenisation itself — they arise from the centralised control and programmability of the unified ledger system envisioned by the BIS. However, a unified ledger cannot operate without digital identity, because identity is the mechanism through which access, permissions, compliance, and behavioural rules are enforced. Hence, a digital‑identity layer isn’t just “likely” in a unified‑ledger or CBDC‑style monetary system — it’s structurally required. And the reason is simple: once money becomes programmable, permissioned, and centrally settled, the system must know who is allowed to do what with which units of money. Given this, in such a world, you only truly control your “money” if you remain outside the unified ledger and hold your own private keys on permissionless networks.

There’s an uncomfortable truth that becomes hard to ignore after reading all of this: the monetary system we’ve inherited — a debt‑driven architecture built on private credit creation — is now being fused with a new digital infrastructure that not only keeps the old debt machine running, but centralises control to a degree we’ve never seen before. Tokenisation, stablecoin regulation, and the unified ledger aren’t random innovations; they’re parts of a single trajectory in which money becomes more programmable, more surveilled, and more dependent on identity‑linked permission.

The public was never meaningfully informed about how the old system worked, and there’s no sign they’ll be consulted about the new one — or even understand what it means for them. “Informed consent” has become something we pay lip service to in this day and age.

However, whether a surveilled, controlled digital future becomes inevitable depends on how quickly anew monetary system is built and how quietly both it and the required digital identity layer are normalised into everyday life, until they’re simply part of the background noise.

At the very least, people deserve to understand the stakes around this: a world where money is no longer something you own, but something you rent from a system that can rewrite the rules whenever it likes. Good luck getting that across, though — for many people it would require looking up from their TV or phone screens for half a minute to notice what’s coming down the tracks towards them. But try we must, because none of this is inevitable if more people understand what is happening.

Systems only become permanent when people stop paying attention to how they’re built. The shift toward a fully digital, fully permissioned monetary world was always going to happen quietly — so as not to invite too much inspection — wrapped in the language of convenience and innovation. But that doesn’t mean the outcome is fixed. Awareness still matters. Asking questions still matters. Even a basic understanding of how money is created, who controls it, and what “programmability” really means is enough to slow down the sleepwalk and force a conversation about money creation that the public hasn’t really had in almost 80 years. The future doesn’t, therefore, have to be a black‑box financial system that treats ordinary people as passengers. And avoiding that future starts with something simple: looking up, paying attention, and refusing to hand over control of your money — without at least understanding the trade.

Thank you for taking the time to read this article. This is a complex subject and I have done my best to simplify it and present it in plain English so that readers can better understand the risks involved and make informed decisions.

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