In the past, I've mentioned a little bit about debt-created money supplies like ours (see Global Food Crisis). Douglas Rushkoff also has some good information about the current US financial meltdown -- the US government has spent an estimated $7 trillion to date (edit: as of April 30, 2009 this is $11.3 Trillion, or around $35,000 from every US citizen) attempting to "resucue" their system [cnbc]. The most frustrating and surprising thing about all the media and government hand-wringing over this (inevitable) "crisis" is the total lack of discussion about our money supplies, the root cause of the crisis.
What is Money?
Most people seem to understand money as a replacement for the barter system -- that trading a chicken for money and then that money for a pig is essentially no different than trading the chicken directly for the pig (other than the fact that money fits in one's wallet better than a chicken).
This is not true any longer.
Up until sometime between 1950 and the late 1960's, when all countries that mattered (i.e. the US and Europe) were off the gold standard, it was more-or-less true, since many currencies were "backed" by a real commodity (e.g. gold, silver, etc). So, trading a chicken for some gold-backed paper and then trading that paper for a pig really was the same as trading the chicken for gold (a commodity in its own right) and then that gold for the pig (save that paper is lighter than gold, chickens and pigs). However, the paper really did represent the gold (just like the Deed to your house represents the house).
Now, however, money is not backed by anything other than government decree (fiat) that we must use it for trade (i.e. hot air technically called "fiat money"). Instead, we (and by "we" I mean charter banks) now create all money from nothing by issuing debt (which is just an almost-costless entry in a computer system). Or, in other words, all new Canadian money is "backed" by debt (instead of a commodity).
Debt Created Money
In Canada (and most of the "first world"), almost all money is created from nothing by a Charter Bank when a person (i.e. corporation or real person) borrows some money. Let's say I take out a $1000 loan -- the Bank creates $1000 new Canadian dollars out of nothing and I owe the bank $1000 + interest. [BankOfCanada] This is how "fiat money supply" systems work in most of the North America and Europe [wikipedia]; merely the details are different. Many nations, including the US, have "reserve requirements" whereby national banks must borrow a certain percentage of their outstanding debt from the central bank. Canada has 0% reserve requirements [wikipedia].
You can read more about commercial banks creating money from nothing.
Sadly, most people think that when banks lend money, they're lending out people's savings. They also mistakenly believe that the Bank of Canada (or the Mint [!!]) creates all our money.
Mike, You're An Idiot
If you don't "believe" that banks create basically all of our money from nothing via debt, please go do some more research until you either believe this or can show me why this is incorrect. Then you can read on.
If the American people ever allow the banks to control the issuance of their currency, first by inflation, and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property, until their children wake up homeless on the continent their fathers conquered. The issuing power of money should be taken from banks and restored to Congress and the people to whom it belongs. I sincerely believe the banking institutions having the issuing power of money, are more dangerous to liberty than standing armies.
Debt-created money with interest is very bad for a number of reasons. The most obvious is that it is essentially a Pyramid scheme whereby it is impossible for everyone to pay back their debt.
Where do I get the money to pay back the interest? By working; in this manner, another person in the economy (probably a corporation, which is legally a person [wikipedia]) gives me some money in exchange for my labour-power (i.e. my time) -- but they, in turn, can only get money by going into debt to a Charter Bank (this, remember, is how money is created). Hence, they also owe interest and can only get money to pay it by doing work for another corporation (or real person). As you can see, this means that on the whole, all the people in the economy must perpetually go into more and more debt (of course, individuals may successfully pay off their debt, but only at the expense of others going into more debt). The winners are the Banks -- they get all the interest, forever. This forces "the economy" to constantly expand -- we must always consumer more and more goods every second, or the whole "system" collapses because nobody can pay back their debts.
Even when people can't pay back their money ("default" on a loan) the banks win because they get all that person's assets. Banks literally do own all of us; every single dollar created makes an obligation for someone to pay back greater than one dollar -- by trading in their labour-power (that is, their time).
As an aside...
In the past, futureologists predicted that we would have an ass-load of leisure time -- and they would have been right. We are now so much more efficient, that we could easily work half as much and enjoy a so-called "standard of living" (aka "ability to consume") of points in our recent past while working considerably less. What these futurologists failed to allow for was our creation of a system of self-enslavement which forces us to constantly consume more and more -- and consequently we've been continually expanding the number of hours per year we work since at least the middle ages [A Geography of Time excerpted by the New York Times, and also here has more](!!)
Inflation and interest. Another effect of a debt-based currency supply is that people who already have a lot of money can also lend it out (they're not creating money in this way of course; only Charter Banks do that). This gives them the interest payments instead of the bank and has the general economic effect of moving money from the borrowers (usually poorer) to the lenders (usually richer) -- or, in other words, of further concentrating wealth. The fact of inflation -- caused when the supply of money is greater than its demand -- "forces" you to put your money into a savings account or similar (investment, loan, etcetera) or your "savings" will lose value over time.
Not backed by anything. A Canadian dollar is worth the paper it is (sometimes) printed on: squat. The currency is not backed by any "real" commodity: only debt, which is ultimately just a long-term promise from some real person that they will labour enough hours to pay back the debt.
Central control. There are a tiny handful of CEOs who control the supply of Canadian dollars (and the Bank of Canada is not one of these, except that they can indirectly "influence" the supply). They control the supply by how much debt they issue (which is influenced by interest rates -- if they're too high, not enough people will be able to borrow [and hence create] money). Naturally, these bankers will control the supply in a way which is beneficial to them (and which is quite possibly not at all beneficial to the people who depend upon the currency -- Canadians).
Okay, that sucks; what next?
There are three ways to fix this situation: "commodity-based" currencies, "fixed supply" currencies or "mutual credit" currencies.
Commodity based currencies are the easiest to understand, since this is how we understands all currencies anyway (as a medium of exchange), and besides we had one quite recently: the gold standard. The Bretton-Woods accord [wikipedia] after WWII attempted to establish a fixed-exchange international monetary system [ostensibly] backed by gold, but ultimately collapsed after the US left the gold standard and subsequently became the de-facto international basis currency (essentially giving them the world economic keys, but that's another story) and left us with our current mess.
Gold is just the most popular commodity to base money on; any commodity would do (e.g. oil, chickens, wheat). As quoted here by Murray Rothbard, von Mises theorizes (based on data back to 1912) that nobody will accept anything as money if it has not been traded before -- therefore all money starts as a commodity. Indeed, the US "greenback" started as a commodity: gold. People were then issued paper representing a real commodity (gold) which had been used for exchange previously. The point is that its value is not set arbitrarily by bankers (or governments) -- it is set through trading just like any other commodity by what people will exchange it for.
Before Bretton Woods, in order to transfer money internationally one had to actually transfer physical gold (or other relatively complicated things). The signatories to Bretton-Woods saw this as a disadvantage (since it slowed down capital flows); I see it as an advantage for the same reason.
The (rapidly deteriorating) gold-backed currencies of the time also made a theoretical limit on the total money supply (all the gold on Earth) and made it hard to create new money, since that meant acquiring actual gold. Strictly speaking, this doesn't add up to a real fixed supply world currency, but it was pretty darn close. Of course, as I hinted at above, bankers saw this as a Bad Thing since they had less power: they lacked the power to decide what a currency was worth (by how much of it to print). They also didn't get interest (usury) from all money created. 
 -- It is interesting to note that the original usage of "usury" meant any interest or fee charged for the use of money, whereas now we've defined it to be an "unfair" charge.
It is interesting to read about Sweden's JAK members bank, an interest-free co-operative bank (with 25,000 members).
Very similar to a commodity based currency is a fixed supply currency. This is a currency whose supply doesn't change. The gold standard was almost this: the supply of gold changed very slowly and was theoretically fixed anyway (the total supply on Earth). A fixed-supply currency fixes a number of the above problems: the supply doesn't change so central control isn't really an issue There is (almost) never inflation: if the economy is really expanding, the currency will always deflate -- a single Canadian dollar (if its supply were fixed) will buy more and more goods as time goes on (since there are more goods, but approximately the same number of dollars). Since the supply is fixed, the value of the currency is totally determined by how much people choose to trade it for -- or, in other words, everyone who holds the currency decides its value (one dollar give one "vote" for its value). These features are all similar to a commodity-based currency if the commodity is a "rare" one like gold (if the commodity was something highly variable in supply, like wheat, then the similarities would be fewer).
To illustrate this difference, consider stuffing $100CDN under your mattress right now; in 10 years, it will buy much less. With a fixed supply currency, it would buy much more (it would be equivalent to hoarding a rare commodity like gold).
There are some serious practical problems with a fixed supply currency such as: how to "bootstrap" it (or start it for the first time); or what happens when the currency becomes "too valuable" (e.g. $1 buys a house). The latter can be solved by splitting the currency at certain points: you could decide that on January 1, 2020 you'll do a 2:1 split, so any pre-2020 $1 can be redeemed for $2 (conceptually identical to a stock-split). Bootstrapping would need to be done by a large institution and somehow distribute "starting" funds to people; how to do this equitably might be quite a problem...or, one could convert our current variable-supply debt-created fiat currency into a fixed-supply currency (with much fighting from bankers).
Mutual credit currencies are issued by everyone who use them. If I wish to pay you for a service, we agree on a price and I give you a credit-note for that amount; you get a debit for the same amount. Basically, every transaction involves one person going into debt (the buyer) and one person becoming a lender (the seller) -- but there is no interest. This means that the supply of money is always exactly what it needs to be. All parties using the currency determine its supply and its value. Every participant can create currency (as needed).
The major problems with this system are mostly practical: how to track the debit/credit notes, etcetera. This system is currently used by many local or so-called "complimentary" currencies. It seems only practical to have them operate inside smaller spheres (i.e. where the participants can and do know a little about each other).
Basically, everyone's balance "should" be zero. A positive balance indicates you've given more to the system than you've taken (i.e. you've done more work); a negative balance means you owe some work to the system. People's balances could be expected to fluctuate up and down (positive or negative) but if a balance becomes "too" negative, this indicates a person is being a leech: they're basically always "buying" but never "selling". Thus, it becomes important that people at all times can easily access other peoples' "balances" -- and refuse to sell to people with "large" negative balances.
I am not sure if we have the technology (or even the theoertical social intelligence capacity) to do this on a large scale; by necessity these systems are probably limited to something on the order of Dunbar's number. In other words, a system like this would work well on a local "village"-type scale, so may be well off in the future when we return to this type of living (once enough of us discover that trying to "co-operate" on the scale of millions is not possible).
Of course, moving our current system to something else needs a practical path.
Moving to a fixed supply or commodity currency: In the short term, the best solution is to re-nationalize currency creation. That is, take away from the Charter Banks the ability to create new currency and give this power (back to) the Bank of Canada. This takes the private CEOs out of the money creation loop. The way to accomplish this is actually pretty easy: merely increase the reserve requirements from 0% to 100% (giving the Bank of Canada total control of the money supply).
Fixed supply: Now we need to make the money supply "fixed" -- this would occur by the Bank of Canada merely refusing to issue more debt. It does seem to make sense to increase the supply as the population grows (to avoid an excessive number of currency splits) -- this can be accomplished by the Bank of Canada only lending out (that is, creating) enough new money a year to keep up with population growth (e.g. a 1% increase in population would mean a 1% expansion of the money supply). To avoid the problems we discussed with debt-based currency creation, the interest rate would need to be 0% -- so the only thorny propblem would be to whom would this money be lent?
Commodity based: To shift to a commodity-backed currency isn't much harder: once the Bank of Canada has absolute control over the money supply, they pick a point in time and re-value the currency in a chosen commodity (say gold) by taking its value then (say $CDN34.69/gram like it just was when I checked moments ago) and re-valuing dollars in that commodity. So $1CDN would become "0.02 grams of gold". The sole purpose of the bank would then become to stop counterfeiting of the CDN gold certificates formerly known as dollars. They could also arrange for the exchange of gold certificates (nee dollars) into gold or vice versa if that was a useful service (that is, "converting" a gold certificate into gold would destroy the certificate and give you gold whereas the opposite would give the Bank gold and they'd print a new certificate).
At some point, I see it as inevitable that we will return to village-sized local organizing systems for our power (instead of 100-million people at a time, which don't work); power-structures or organizations of this size can use mutual credit currencies locally. For inter-group transactions, either they can agree on a way to exchange their local currencies or use a widely-agreed-upon fixed-supply currency (e.g. the leftover national fixed-supply or commodity-based currency).