In the modern banking system money is created through lending. For every dollar in existence there is a corresponding amount owed.[1] By and large, in the commercial banking system S≠I, no money is transferred from savers to investors.
One way to describe this phenomenon is that banks print money out of thin air. That may appear to be true – after all at t0 there are zero dollars and at t1 dollars popped into existence – seemingly out of nowhere – but in really what happens when a bank makes a loan, whether it is securitized by a physical asset or not, is that it the bank liquifies an existing asset and takes the asset out of the unencumbered collateral pool.
So, although banks create money, it is not out of thin air. The increase in the quantity of money is usually more than offset by a decrease in the quantity of free available collateral.
Private Sector
If you go to the bank for a mortgage and you pledge a house that is worth 100,000 the bank will give you a portion, say 80% of that. In this case the money supply increases by 80,000 but the free collateral pool decreases by more than that – 100,000 – because the entire house is pledge, not a portion of it.
Public Sector
The government can do the same thing. The federal reserve can purchase assets in the open market and pay for it with money that it creates on the spot, thereby increasing the amount of money in the system. The seller has of the asset has now cash in hand which can be either re-lent or spent on goods and services. However, the asset that was sold is now held by the fed so it can’t be re-sold again – it is no longer free collateral. When the fed either sells the asset or when the asset matures and pays off the money disappears again.
Asset Swap vs Liquification
It should be clear by now that using one-sided, or counterparty free assets like gold or bitcoin cannot work as money. A bank, or the federal reserve for that matter, cannot create gold or bitcoin out of nothing and then take a house as collateral. The most it can do is to essentially do an asset swap – you give up the house, either temporarily (a loan) or forever (a sale) and get gold/bitcoin in return. After the transaction, the bank would now have a house, or a claim on a house, and nothing else. It would have to wait to continue to do business until the loan has been repaid. Using counterparty free assets as the basis of a banking system makes liquification of assets impossible – the most you can do is swap them until the bank runs out of gold/bitcoin to engage in further swaps.
The quantity of gold/bitcoin in such system would for all intends and purposes be fixed but the quantity and value of real assets that would require liquification in order to have a functioning economy, are variable. This would cause the exchange rate, or price, to vary independent of changes in the relative value of the asset visa-viz other assets.
So as unintuitive as it sounds and as emotionally unappealing as it is, in order to create liquidity among clunky, illiquid assets, or less tangible assets like future income streams, the only self-liquidating way to accomplish this is by allowing (banks) to create money on the spot in exchange for a claim on collateral. In short, one-sided assets cannot function as currencies.
[1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf