I guess I don't understand how this would work. If you make an option on a short sell you have to borrow the equity, it seems like the same would be an issue with the money itself in lending, it would be an end to fractional reserve lending. As a bank you no longer could hold a reserve say 10 to 1, you would be "creating" money- as is done now. A CB could "lend" cash options to cover a bank's lending? So this would require the CB to hold cash in reserve all the time to cover lending, reducing the amount of money in circulation by an amount equal to credit. You also have problems when you trade securities, an MBS for example represents cash equivalent and the value changes. If it goes to zero is that amount credited back to the CB?

It seems that the finance market would leverage the entire money supply through credit transactions, it being so much larger than the rest of the economy. People would in fact have incentives to both sequester money into credit agreements and take deflationary positions. It seems to be a very instinctive and simple form of arbitrage.

What if you secured currency (not all, but a private electronic currency) with commodities and other forms of value. Your personal account would fluctuate in standard currency value based on the underlying assets, you would trade actual ownership like an ETF, with a fee for transacting out of the system. It would be a little floating basket that represented a liquid exchange outside of the fx world.