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Since fractional reserve banking where money is created by lending is possible with Bitcoin is there a way it can be measured to give a total amount of money in the system? Such a measurement would actually reveal the value of money multiplier which I define as a real statistical ratio between commercial banks money and monetary base rather than a theoretical maximum ratio that is legally defined (because of lack of regulation with Bitcoin).

I guess such a measurement can either be direct (by lenders reporting how much they've lent) or indirect (measuring some other impacts those loans have on economy).

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The concept of a money multiplier is meaningless in an unregulated environment. The money multiplier is, by definition, a legal limit imposed on the reserves banks must have.

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  • You are not right. The multiplier is ratio between monetary base and all money in economy. Even if no legal limit is imposed there certainly is some lending occuring so the multiplier value must exist. – Kozuch Dec 31 '13 at 0:40
  • Correction: the ratio is of course the other way around. – Kozuch Dec 31 '13 at 0:47
  • @Kozuch No, the ratio is between the maximum amount of money that can be in circulation and the monetary base. This presumes some limit to the amount that can be in circulation. See, for example, the Wikipedia article you linked which says, "As a formula and legal quantity, the money multiplier is not controversial – it is simply the maximum that commercial banks are allowed to lend out" and "The money multiplier, m, is the inverse of the reserve requirement, RR". (Emphasis added.) – David Schwartz Dec 31 '13 at 5:17
  • Yep, true dat. If there is no reserve requirement then the potential money multiplier is infinite. Just put in 0 and see what happens. Can't wait for a price stable crypto just to see what's really possible... – user5107 Dec 31 '13 at 7:02
  • Ok, it seems there are multiple definitions of money multiplier either as statistic of or maximum "commercial bank money/central bank money" ratio (see linked Wikipedia, section "Definition"). I rephrased the question to remove possible confusion - I want to measure the "statistic" (real) value, not a theoretical legally maximum. – Kozuch Dec 31 '13 at 9:24

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