User talk:Atheros

FRB does require substitutes. It is logically impossible to conduct FRB without substitutes.

With fiat dollars, the base money are the reserves the commercial banks have with the central bank, and the substitutes are the account balances that the commercial banks provide to their customers. Only the central bank can create the reserves.

With gold, banks take in gold bullion or coins, and provide either bank notes, account balances or cheques as substitutes. The banks in case of gold money cannot create more gold any more than in case of fiat money commercial banks cannot create more reserves.

It all boils down to substitutes, which are necessary with gold/fiat, but not necessary with Bitcoin.

For an explanation on how FRB works, please consult Selgin's Theory of Free Banking: http://files.libertyfund.org/files/2307/Selgin_1544_EBk_v5.1.pdf

Please reconsider putting my edit back.

PeterSurda 09:59, 7 November 2011 (GMT)

Let me also quote from the article you reference:

As most bank deposits are treated as money in their own right, fractional reserve banking increases the money supply, and banks are said to create money.

This quote explains that because the substitutes (deposits) are handled as if they were money (reserves), this increases the money supply. This phenomenon is absent with Bitcoin. A Bitcoin "deposit" is still Bitcoin, it is not a substitute, and neither are Bitbills, Casascius coins or wallets you have on your computer. The only way to do FRB is to present an alternative, a substitute, which of course is incompatible with Bitcoin, and for which there is no demand.

PeterSurda 11:39, 7 November 2011 (GMT)