Kevin D. Hoover wrote: "the issue concerns only fiat money issued by the   
government.  Nor do I deny that the Federal Reserve records banknotes as   
its liability.  The question is whether this has any real significance.   
  It doesn't."  
  
In terms of its redeemability into some other commodity by the Fed,   
Federal Reserve notes being its liabilities has little significance.   
But the Fed stands ready to redeem its notes -- from one form to another   
-- upon request by their holders because they are its liabilities.  The   
notes do not even have to be defective or worn.  (I'm glad William   
Coleman recognizes some "contingent liability" on the part of a seller   
of defective buckets.)  
  
Thus, the Fed would have to exchange large bills into smaller   
denominations, upon request; no questions asked.  Of course, most   
financial institutions do this, but only as a courtesy to their   
customers.  Some vendors also refuse to take large bills in exchange for   
their wares, in spite of the inscription, "This note is legal tender for   
all debts, public and private."  (Of course, one might say that no debts   
have been incurred until the wares have been parted with or services   
rendered.)  
  
As already has been mentioned, the Fed treats coins in its possession as   
its assets, precisely because these are issued by the Treasury.  The Fed   
would have to credit the Treasury's accounts with (i.e., issue its own   
liabilities in exchange for) the dollar amount of coins it acquires.  
  
Also note that when paper monies were redeemable into gold or silver,   
very few holders did, under normal business conditions.  The fact is   
that people hold money (currency) only as a temporary "abode of   
purchasing power."  They are waiting to exchange it for some other   
things presently.  
  
I see another significance for recognizing dollar bills (fiat currency)   
as the liabilities of the Fed (or a central bank).  The Fed is the only   
(legal) source from which we obtain that particular commodity by which   
all others are valued -- the unit of account; this is the classical   
definition or characteristic of what is money (e.g., Adam Smith).  (The   
switch to calling whatever commonly may serve as a medium of exchange   
money occurred some time during the late nineteenth century.)  
  
Thus, when the weighted average of the value of all other goods and   
services (the price level) rises or falls, we are clearly able to point   
to the source of that occurrence.  It must have arisen from too much of   
the that particular commodity (currency) having been supplied relative   
to its demand, in the one case, or too little of the commodity having   
been supplied relative to its demand, in the other.  This is, of course,   
the classical quantity theory of money.  
  
Matt Forstater wrote: "James -- I'm not sure why you got the impression   
that I was saying 'fiat money' is bad or undesirable; not at all."  I   
got the impression from your having having written, "One side point:   
what they are engaged in is barter--the metal disks are not 'fiat  
currency.'  There are no liabilities!"  I thought the exclamation mark   
indicated your relief at the presumed absence of liabilities.  (The   
monkeys could always throw the metal disks back at their issuer if they   
didn't like the "game".)  Apologies for my misinterpretation.  
  
James Ahiakpor