If you allow private banking but disallow private central banks a la Federal Reserve, I still don't see why you would need the government "to create" money.
The government can possibly hold money, and make it work to generate interests, like any investor, with more or less risk, but there is something I can't miss to notice you never made clear:
we do agree that government, in and out itself, creates NOTHING, right?
Because government is force and only force, supposedly to protect the just law - that is:
rendering justice. And only justice. When one steals from others, when contracts are broken without due compensation, etc.
Government cannot create sh.i.t.
It can only TAKE what the people have accepted to abandon to it for its functioning.
Thats also why small government is preferable: it keeps the figures and books small, facilitating the accounting.
So, again: why the hell government would need to create money or interfere with banks?
Thats precisely the mess we are in today: private banks who have the exceptional privilege to counterfeit money, on behalf and with the blessing of government!
I don't get it.
The closest I can think of what you seem willing to pursue is government-only owned central bank, a la Gosbank, in former soviet Russia.
I have bad news for you: that's also a terrible, dreadful idea... we know how completely managed, planned economies end... in a disaster, will a lot of suffering and deprivations for most of the people (but the government mafias) and for decades before ineluctable collapse.
My name is pronounced like "see real". I code stuff for a living and for pleasure. I care quite a bit about language.
I think America should consider doing the same, and... ASAP!