It could be argued that perhaps it is not such a good idea to base money on debt. But it has managed to get the job done, largely because people can still be ex

It could be argued that perhaps it is not such a good idea to base money on debt. But it has managed to get the job done, largely because people can still be expected to pay debts in full. This expectation largely holds because the system is set up so that paying in full is by far the most attractive option. The thing about your system is that under it, paying debts in full doesn't make any sense. You could just hold out for a settlement, pay far less than what you'd borrowed at that time, and leave the creditor holding the bag for the rest. When paying in full doesn't make any sense, lending doesn't make any sense either. When lending doesn't make any sense, then a system of money based on debt is doomed to collapse. One possible way to mitigate this is to set it up so that the debtor earns the legal right to first refusal when, over the lifetime of the debt to date, an amount of money equal to the original principal (or maybe the principal plus some multiple of the APR) has been paid into it. That would prevent the worst abuses of first refusal, because you don't get it until the lender has at least recouped its initial investment. But it doesn't completely solve the problem.