[icebraining]

Sure, but that doesn't mean that new money can't be created with a Bitcoin-based fractional reserve banking system, it just means they wouldn't have a central bank acting as a lender of last resort - though they could still get loans from other banks.

[Jtsummers]

I guess my point is, under the system present in the US and (to my understanding) many or most other countries, you have more dollars floating around than there actually are, a fair chunk is technically non-existent, but still used in transactions.

With bitcoin, unless you're using bitcoin as the backing for another system, you don't have excess floating about. If there are 100BTC in the world, the system doesn't allow the ledger for all bitcoin addresses to sum up to anything over 100BTC. This breaks, for better or worse, the lending model that fractional reserve banking depends on. Now, if BTC is treated like a commodity and is the backing of some other currency (like gold used to be), then that other currency could be used in an economic system that uses fractional reserve banking.

[icebraining]

But my point is that the system doesn't have to support it, you can have "technically non-existent" Bitcoins like you have technically non-existent dollars. The bank can just tell you in your balance that you have Ƀ30 without actually having them according to the ledger.

[jpadkins]

correct. Which is how all dollar fractional reserve banks operate.

The sum of balances they report to depositors is much greater than the currency they actually have.