They did fractional reserve with gold-denominated currencies.
Sure, you could create a bitcoin-denominated currency (a terrible idea, but let's entertain it) and perform fractional-reserve banking on it. But at that point, bitcoins become irrelevant.
Let me start by throwing out a little bit of terminology just to make it clear if we're on the same page. Loans have existed since money existed. The only difference between a private loan and fractional reserve banking is that the lender is a) lending someone else's money and b) allowing depositors to withdraw money despite the fact that the sum of all depositor's money is not physically possessed by the bank.
Wikipedia's page [1] is a reasonable place to start. The Babylonians were issuing loans in gold. The Greek and Egyptians were issuing loans in gold. The Romans were issuing loans in gold. None of these (except the Egyptians, with their seed grain short-term currencies) were issuing any sort of derivative currency or notes.
Throughout medieval times, letters of credit were frequently used as a form of correspondence banking [2] for travelers. The lack of high-speed communication meant that the settlement and clearing of loans could take months or years, but the depositors (correspondent banks in foreign countries) were unlikely to make any immediate claims on their deposits except through such letters. The letters could be redeemed, usually, directly for gold. You can argue whether this constitutes fractional reserve banking; it's in some ways closer to what we would now call "corporate paper"; very short-term credit extended to very high trust individuals or institutions.
[1] https://en.wikipedia.org/wiki/History_of_banking#Earliest_fo...
It is, in fact, exactly what fractional-reserve banking means: Loaning a fraction of your reserves.
BTW: The exchanges are creating money by allowing margin: There is already a difference between M0 and M1 in the bitcoin economy.
In your example, they can fractional reserve with letters of credit and trust. At no point can a bank actually loan out more physical gold then it had in its possession.
FRB is essentially a form of "double spending", but under certain conditions to maintain stability.
Bitcoin doesn't allow double spending. Neither does gold.
This is nonsense. Loaning money that you own is not "double spending".
Fractional reserve banking means you accept deposits, and you make loans from those deposits, and the difference between the amount you've lent out and the amount you have in deposit is called the "reserve". If you try to maintain your reserve as a "fraction" of your deposits, you're doing "fractional" "reserve" banking. What's the "literal" aspect?
You can't spend dollars that you have in the bank, not in the sense of handing someone cash. You can do money transfers to other accounts or other banks, but when you get down to how a money transfer happens (i.e. deposits with a central bank or correspondence accounts between institutions) there's no reason that you can't do that with any substance or commodity.
There's no double spend involved, because you don't have specific Bitcoins on deposit. The Bitcoins you've deposited are long gone; munged into some central wallet and lent out to depositors, with only a fraction held by the bank. When you ask to withdraw, they take that fraction and give you the amount of your withdrawal out of it, and reduce the paper balance of your account.
Whenever somebody asks me to give them back their gold, I reach into the pile and hand them pieces equal to the amount they deposited, but not necessarily the same pieces.
But this happens infrequently enough that most of the time, the pile just sits there. So I decide to only keep half the pile sitting there -- more than enough to cover the rate at which my customers make withdrawals -- and loan out the rest to borrowers I deem credible. I charge interest to make up for the losses I take on bad borrowers and actually make enough profit on this interest to keep some and pay some out to account-holders.
I would say I am 1. conducting fractional reserve banking, with a 50% reserve ratio, and 2. not creating a new currency (everybody still transacts in gold pieces).
Are you saying that this is NOT fractional reserve banking, or that it IS creating a new currency?