@OP:
It would not be “illegal” to make gold-plated tungsten coins in a private law society so long as you did not deliver them on an explicit understanding that they are, in fact, gold coins (then it is definitely fraud). The rule in a free market is “buyer beware”.
Similarly, it would not be illegal to issue fractional-reserve notes so long as the notes do not explicitly claim full-reserve status. I don’t think notes from fractional-reserve banks would be any more desirable to consumers in a free market than gold-plated tungsten coins. Assayers certify the quality of gold bars and coins can be checked in various ways to ensure they are “the real deal.” I imagine there would be an industry of banknote certification companies which would verify that your note is, in fact, fully backed by whatever it is supposed to be backed by. Faced with two customers holding a “gold gram note”, one certified and one uncertified, which do you think I, as a vendor, will prefer? Gresham’s Law operates in reverse in a free market in the production of money.
Clayton -