Say you give me a donkey and I give you an "IOU - one donkey or equivalent". That IOU represents my debt to you. If my reputation is good, you could trade that IOU to someone else for say, 10 chickens, you pass my debt to them. If my reputation is really good, your town could pass my IOU around for different goods and then my IOU acts just like money.
Cash (and money) works the same way as an IOU. It's just that the owner of the debt is abstract and far removed from the holder of the cash.
So it seems that in an economy without money, money will arise automatically, in the form of debts that are to a greater or lesser extent formalised. So why do economies need central banks? What's wrong with that kind of "informal money"?
I have a strong suspicion that we don't; that it's governments that need central banks.
This is generally the way we react to that sort of things. And even if things still sometimes break (in slightly different ways than before) these systems have allowed us enormous amounts of economic growth.
The central bank won't have to set the interest rates anymore if the reserve requirement is something sane like 20% or 30% as banks are limited in their bank reserves and thus incentivized to choose the right interest rate for themselves. This also eliminates the need for QE.
You still need the central bank as an inter banking network by the way.
Please excuse my economic ignorance.
In the absence of money (or debt), we are reduced to barter. I give you a donkey, you provide me with grain for a month.
But suppose you don't need a donkey? Well, you can trade it for something you do want; so the donkey is now a medium of exchange, i.e. money. Instead of carrying donkeys around, you can instead carry some token, with the legend "I promise to pay the bearer on demand one donkey". You could even stamp a donkey's head on the token.
> if an economy is growing, it needs more money
I get that. But why does that mean the government has to print money (or buy back government bonds, or whatever)? Why does the market not automatically synthesise the means of exchange that lubricate the matching of supply and demand? Is it simply because a barter economy is inefficient? But then why doesn't a barter economy automatically produce means of exchange that are efficient?
Again, I apologise for my manifest ignorance.