>Asset backed currency such as gold are backed by a finite amount of gold.

Currency units are somewhat arbitrary. If you don't believe that the market needs a central technician for it to run properly (I don't, but I'm in the minority), then I'm pretty sure a modern economy could be run on currency backed by almost any commodity.

What most people fear and distrust about fiat currency is putting one legal monopoly in charge of such an important part of the economy. It's too much power. A gold-backed currency takes that power out of the hands of any one man.

I advocate that we should use whatever currency the market chooses. I want the market to have the legal rights to make that choice. Historically this was the case until legal currency monopolies were created to fund wars.

I agree. Society would be much better (fairer, wealthier, more peaceful) if there was a separation of economy and state.

The problem with picking just one asset with which to back your currency is that you have two options:

a) pick something your country is a net producer of, knowing that producers will create more than the industrial demand to accommodate savings (this is the case with gold).

b) pick something you're a net consumer of, so saving more money hurts consumption (if some people are right and oil is being used as a proxy currency to hedge against the dollar, this is happening now).

I don't know what the solution is -- I see nothing wrong with highly liquid index funds, against which someone can write checks denominated in whatever unit they choose. But a deregulated market would probably out-innovate me pretty fast.

I wouldn't agree with "debt based currencies are backed by the ingenuity of the people". Debt based currencies are backed by the trustworthiness of the debt issuing entity. It doesn't matter how ingenious Americans are as long as the Fed prints money to fund the welfare and warfare state.