In this currency the available supply will always be close to 100% of the base because demurrage is taken from every address and given back to miners as part of the block reward. So money that got locked up due to lost private keys will slowly get back in circulation.
But someone will still create a new currency at some point to compete with it once your coins become valuable enough or too hard to mine, I wasn't really talking about lost coins. The supply of coins from the new network would diminish the value of your coins.
Savings and loaning out savings are an important part of economic growth, demurrage provides a disincentive for this.
What? Loaning out your savings is certainly encouraged by demurraged. If you just leave your money sitting in your wallet then you'll slowly lose it.
I should say savings is discouraged, which in turn would diminish lending since money to lend comes from savings. Of course a bank would pay enough interest to cover fees on the savings, but I guess it would also raise interest rates. Of course I doubt there would be any banks for your new currency for a good long while, if ever. Basically holding your money is heavily discouraged, I'm not sure if this is always a desirable result. Maybe you're right in that there is a benefit to it, but this hasn't been proven. It all comes down to again convincing people to jump on board, which is hard enough to do with crypto-currency without having the added complexity of demurrage.