Paying back debts

Suppose a charismatic anti-debt crusader (maybe Ron Paul) persuaded everyone in the world to pay pack all of his debts. This includes the U.S. treasury, all private banks, corporations, and all individuals (but not central banks, e.g. the Federal Reserve System banks, since their debts are represented by the currency itself). This includes all depository institutions, which would be required to send actual dollar bills to their depositors, and zero out the deposit accounts (since “deposits” are really just debts owed by the banks to the depositors).

Question: How many dollar bills would be in circulation (i.e. would exist and be owned by entities other than Federal Reserve System banks)?

I believe I know the answer, but I want to finish reading this before I say definitively.

Another question: is there any substantive reason the U.S. Treasury needs to be separate from the Federal Reserve, or is the separation motivated by the desire to have transparency and to encourage responsible governance?

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