If a new asset-backed currency is created, somewhere there has to be a vault with assets backing these currencies. Being able to trade the new currency electronicaly does not mean assets to back them are not needed (because by definition that would make it a fiat currency).
You're thinking of an asset backed currency, but the constitution does not allow an asset backed currency, only an asset currency. The actual physical asset. The governments are limited to gold and silver for their transactions. The free market is not limited to gold and silver. We can use any kind of asset we desire. We may choose gold and/or silver as the index that all prices are denominated in, but we don't need the amount of gold and silver for every transaction. Like I said before, every easily traded asset is the money supply. For example, I own stocks in several companies and I can easily liquidate each of those assets to pay any debts. No physical gold or silver is needed in the transaction, it might only be used as the index so I know how much of my stock to sell to cover my debts.
m1 is not the way to measure the amount of assets needed to back our currency. M1 does not include things such as savings accounts (somewhere between m2 and m3 is the correct measure of what would need to be asset backed). see:
http://en.wikipedia.org/wiki/Image:Components_of_the_United_States_money_supply.svg
What's the difference between a savings account and a checking account? They are not the same. A checking account allows you to withdraw all the money right away, whereas a savings account has limits on how quickly you can withdraw the money. A savings account is a time deposit. Though with the federal reserve and fractional reserve banking this is harder to see the difference now. The money you would have in a savings account is not actually there, but is loaned out. In other words, the balance would represent a promise to pay within some time in the future. Since everyone is not going to the bank on the same day, the banks usually allow you to be able to withdraw all of your money instantly.
I agree that what we call the measurement tool does not matter, however I disagree that your analogy applies to currency. We use 7 trillion dollars worth of currency to make the economy function. I agree we could think of that 7 trillion dollars into CPI baskets, houses, bars of gold, or whatever we want, but at the end of day the US market is demanding this amount of liquidity to function. You can't replace that liquidity with the world supply of gold (about 130,000 tons... ~4 trillion dollars).
True, but gold isn't the only liquidatable asset. Again, the money supply is everything that can be easily liquidated. Even today, it's not just dollars, but it is gold, it is silver, it is promises to pay, it is homes, it is cars, it is stock in a company, it is oil, etc, etc.
What is the dollar anyway, as it is commonly known as today? It is a promise to accept, by the Federal Reserve and from the US government to pay their debts. To you and I, it is a promise to accept, by the government from us, to pay any debts we owe the government. Of course, that means the dollar is backed by the government's ability to impose taxes on others.
