> Continuing the thought experiment, consider what goods and services people would continue to spend money on, in spite of the expected increase in the value of money.

Sorry, but you didn't understand how capital accumulation works.

People work and so on, get paid and so on. Then they spend part of it on their living expenses and save part of it (that's the domestic savings rate).

The money saved doesn't just sit under a mattress, it becomes the stock of capital in a country (plus and minus capital imports and exports and so on), which is then invested in projects (startups, infrastructure, etc.) that need capital.

Banks are the intermediaries in this market, taking capital from savers and providing investments and loans to projects that need capital. That's why so many emerging countries are desperate to get people into the banking system and to move their savings to the banks (the US did it by Executive Order 6102 for example).

Without this stock of capital, it is impossible to start a business, or to fund large infrastructure projects. It is a key and necessary component of a healthy economy.

And bitcoin kills it completely.