[valtron]

Let T be the total amount of money in circulation in a given currency C. When you see a value X in units of C, convert it to C' by X in C' = X / T. There you have it, every currency is already trivially equivalent to Bitcoin in that the supply of C' is fixed at 1.

How they're _not_ equivalent is that the creation of money in existing currencies is centrally controlled. You can get a clearer view of what happens when money is printed by looking at C' rather than C.

For simplicity, pretend there's only the Mint (can create money) and the Public (can't). Initially, Mint has X C and Public has Y C. In C', this is X/(X+Y) C' and Y/(X+Y) C'. Then Mint decides to create Z C. Mint now has (X+Z) / (X+Y+Z) C' and Public has X / (X+Y+Z). The Mint has effectively transferred money away from Public. All arguments against deflation are, basically, Mint will now redistribute the money in such a way as to stimulate the economy.

[nhaehnle]

the creation of money in existing currencies is centrally controlled

This is a common misunderstanding. For typical fiat currencies, money creation is highly decentralized in the banking system. Most money creation happens when banks give out loans. Conversely, most money destruction happens when loans are paid back.

This is actually why our system works so well: the supply of money is not controlled by a central (and therefore fallible) institution, and neither is it fixed (which would be even worse). Instead, it adapts automatically to the demand of money (perhaps one should better say "liquidity" here) via market mechanisms.

[valtron]

Interesting point, and you're right: I was only considering printed money!

[nhaehnle]

Exactly. And even with printed money, one could reasonably argue that the fact that money is printed centrally is irrelevant for the behavior of the economy.

After all, central banks typically just react to the demand for physical money that they observe via the requests that come from banks.