Fractional Reserve Banks currency also usually exhibits natural demand on the account of being the currency required to pay taxes and accepted by stores/businesses in that country.
Yes, fractional reserve banking is bad. But at least the central banks have somewhat a clue how to control it and a legal framework to do so. Whereas for bitcoin exchanges, they just make it up along the way.
Some important differences:
- Your bank tells you it's fractional reserve, Tether tells you they're full-reserve (deception for financial gain is fraud)
- Bank accounts are protected from bank insolvency by FDIC insurance
- Bank risk appetite is modulated by the rates they pay for that FDIC insurance
- The Fed acts as a lender of last resort, guaranteeing the liquidity of your deposits, in order to prevent a bank run
The Fed has the muscle to keep fractional reserve banking propped up. Tether may be lying about being full-reserve, and don't have the muscle to stop a tether run, which could get ugly.