What credit derivatives do - as guarantees by any other name - is to allow banks to outsource this primary function to investors.

In my view the logical way for Banks to operate (and indeed a logical extension of what they are doing already) would be for them to act purely as service providers putting no capital at risk, but managing bilateral credit creation between sellers and buyers within the context of a mutual guarantee.

This "Guarantee Society" model does not require "Interest" per se, but does require a payment to cover the manager's costs and a provision into a default fund.

The participation of local and national government in such Guarantee Societies would be analogous to the way that "legal tender" gives rise to "fiat" currencies.

But note that this would only solve the problem of allowing "value" = "money's worth" to circulate in a non-inflationary way.

Credit is not in fact "value" but is a means for value circulation (a claim over value) which our society has allowed to be "monetised" and mistaken for value.

The vast bulk of value is not in fact circulating (and the corollary is that most existing money cannot be inflationary since it is not in circulation) but is "static" - ie "tied up" in capital assets, principally residential property.

I believe that the "use value" of some assets, and the production of valuable commodities by others - particularly land rental values (ie "Land Rental Units")- could in fact form the basis of domestic currencies.

This was essentially the concept put forward by John Law 300 years ago, and I plan to write a concept paper outlining how that proposal may be updated to work in the here and now without any requirement for legislative changes which would never be made.

For a global medium of exchange, energy units appear to me the logical candidate, giving rise to a new "global reserve currency".

And of course all exchange would take place on the "International Clearing Union" suggested by Keynes.

Before any of this could possibly come to pass, of course, the current system has to fall over.

Which, as Jerome so coherently explains, is a matter of "when" not "if".

"Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky