That's one of the reasons currency decreases in value, it's a deliberate effort to get people to use just about anything else as a store of value.
> Won't people rationally flock to such currencies
Supply constraints combined with utility to drive demand (whether a supply constrained “currency” has the latter is another question) makes for a good store of value—investment—but that's orthogonal to utility as a currency.
That argument has been levelled and Bitcoin, and I personally agree with it. It explains the adoption boom up to this point, and off the back of it it's possible to fairly confidently predict a bust when returns fail to materialize. Right now returns are based on adoption coupled with increasingly constrained supply.
In theory, when bitcoin reaches a saturation point of adoption, the value of bitcoin won't increase anymore (it can't if there is no more demand). At this stage deflation would technically have stopped and the currency is matured.
This should lead to a much more stable economy than we have now, where people aren't encouraged through the use of cheap credit to make emotional purchases for things they don't need, sure the economy might not "grow" at the same rate but the growth would be a more precise representation of what people truly needed (instead of just being a big party). Maybe people would even lead more stable responsible lives.
That's why you don't want to store your wealth in "cash" for investing, you most likely want to lend capital to new ventures that needs it.
I could invest with a deflationary currency. I might not have 100% of it invested at every moment. When I do, the company could hold onto that for a while until they're able to make use of it. It benefits both of us (individually) for that money to not be decreasing in value, even if it works against us (as a society) in that we have decreased incentive to spend.
The key question is that if normal rational people would choose a deflationary currency if given a choice, and that choice is becoming more and more realistic, at what point does the current strategy of "assume everyone uses the nation's main currency and do what's best for the whole economy" not work any more?
When the government stops using it as the basis for taxation, damages in civil cases irrespective of the specific nature of the assets at issue, and criminal fines.
Because as long as those (especially the first two) are true, essentially everyone will use the natiobal currency substantially, both directly and indirectly, regardless of what other assets and currencies they use, and normal monetary policy measures will affect the broader economy in the normal manner unless the auxiliary currencies are actively managed to counteract national monetary policy.
I guess to me it doesn't seem fundamentally impossible that those things could be based in a national / fiat currency that is not the same currency a large number (or even majority) of people use.
That's immaterial, in the same way that you can sell non-currency assets to get dollars to pay federal taxes is.
As long as the taxes are denominated and collected exclusively in dollars (and as long as that's the norm for civil damages, as well), the supply of dollars will affect the economy in the usual way, whether or not for most transactions people directly use things that are not US dollars.
Doesn't it rely on the premise that "we" (as a society) are deciding what currency all of us will use? I think what you're saying is totally true, but as a single rational person, I'd rather store my savings in something that is not (by design) decreasing in value.
People could always theoretically do this with gold, but it's not quite the same since gold has its own risks (like it being lost or stolen), ongoing costs (to protect it), and is trickier to trade.
Bitcoin is still in its early phases and another cryptocurrency may surpass it at some point, but if we don't already, it's likely people will have increasingly easy access to currency that is algorithmically constrained (like Bitcoin). Won't people rationally flock to such currencies, and if that's the case, won't it be difficult to encourage spending / investment using a minorly inflationary currency?