How the debt is settled is essential to the question of whether Alice and Bob can create money. You are theoretically correct when you argue that they can creat

How the debt is settled is essential to the question of whether Alice and Bob can create money. You are theoretically correct when you argue that they can create money via debt, but practically this is not correct. The difference is that in reality, Alice and Bob will need to complete this transaction through some commercial bank vicariously recognized by the Central bank. These banks are recognized because they are (perceived to be?) solvent and follow the rules; and this recognition confers them the right to generate deposits based on loans. Alice and Bob can do the transaction without these banks, but no other party will recognize the money/deposits that this transaction creates. Sure, debt creates money. But the only debt that creates USD is debt that is recognized by US authorities. If it's not recognized, your transaction simply created BobBucks(TM). No-one seems to want BobBucks (besides Alice for some reason).