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But let's put it aside and start with basics without involving lending. What RBD theory indicated has nothing to do with FRB, it is this part I am most interested in this thread

You are right, these are two different subjects.

I think the RBD is a system that is slightly better than "just printing money", for two reasons. The first reason is that "just printing money" is too openly evident. People wouldn't trust the ministery of finance that prints *directly* dollar bills. It wouldn't seem fair. The seigniorage is too evident and visible.

In the RBD, actually, money isn't printed "just like that", but an asset is chosen to be "monetized". Be it land, stock, gold, whatever. If the RBD is applied honestly, it just looks like as if that asset is taken out of the economy and "destroyed" (stored irreversibly in vaults) in a way, and REPLACED by fiat money. It is as if the asset itself were now enforced to be "money", but that for practical purposes, we use paper instead of physically that asset.

The state could, for instance, just declare that land is legal tender. But it isn't practical to go to the grocery and buy vegetables with 20 cm^2 of land. So in order to make that more practical, the central bank buys up the actual land, and issues paper instead, that is "good for so much land".

It could have been gold: suppose the state declares gold to be legal tender. Now, it is entirely possible to carry around gold and buy your vegetables with gold, but it could indeed be more practical that a central bank buys up the gold, and issues equivalent paper for that.

It could have been just anything. The state could have declared sea shells as legal tender, and buy up sea shells and issue paper for that.

What the state simply does, is to enforce the choice of an asset to become money, instead of having the market choose it. Whatever assets the state decides to be bought and issue paper for it, the state implies that the bought-up assets become money (but are exchanged for paper which "stands for" it).

And now exactly the same problems happen with that, as when the market "monetizes" an asset:
1) there is seigniorage due to the *increase in value* of the asset
2) the usage of the asset becomes very expensive, which leads to economic losses, if the asset was useful.

Indeed, if the asset is massively bought up by the central bank to issue paper money, its demand will rise, and the asset (land, gold, sea shells) will increase in price (it will be the monetary part of its value). People who were holding the asset before, and can sell it to the central bank, enjoy the seigniorage and can become rich.

But there is in fact no big difference between the state using a RBD, and the asset that serves as backing, becoming actual money through the market. The only thing a RBD does, is to enforce this choice.

And because of the rise in price of the asset, and the taking the asset out of circulation, everybody using the asset for production or consumption, will suffer (and pay the seigniorage).

So it would be most terrible if the state were to use land, because land is very useful. It would be terrible to increase land prices, and to set land apart "in a vault" so as not to use it any more.