Quote from: Funkypala on June 28, 2011, 09:56:27 AM

How could that happen with bitcoins? If the bank lends 100btc to someone, then he hast the btc and the bank has 0 btc. If he then deposits them on a bank, then there are 100btc. No btc were created. 100btc in the begtinning 100btc in the end.

You deposit 100 bitcoins in my bank. You still have 100 bitcoins, they're just on deposit. I then lend out your 100 bitcoins to Jeff. He now has 100 bitcoins. So the original 100 bitcoins is now 200 bitcoins.

If Jeff owes Jack 20 bitcoins, he can transfer 20 from the 100 he borrowed. If you want to pay Alfred 20 bitcoins, you can transfer 20 bitcoins from your account to Alfred's account. So the bitcoins in your account work just like real bitcoins even though they're not. Of course, when you (or Alfred) withdraw money from the bank or Jeff pays back his loan, the number of bitcoins in circulation is reduced.

Essentially, bitcoins in banks (which are just numbers in a bank's computer) work almost the same as real bitcoins. The effect the supply of bitcoins (for price purposes) almost exactly the same way.

One tendency of bitcoins that may reduce this is that they are easily transferable without help from a bank. One of the main reasons people keep money in banks even for short term use is to make it easily transferable (checking accounts). If this doesn't happen with bitcoins, then the ability of banks to create bitcoins will be much less than it is for dollars. If banks lay their own storage and transfer system on top of bitcoins, to the extent people use that system, banks will be able to create bitcoins.

And, of course, if the currency is unstable (as bitcoins are now) banking won't be possible (except with offsetting shorts, which is very hard to do). So that stops banks from creating bitcoins. But that hopefully will change in the future.