I have news for you. Dollars or your <X> fiat currency are not taken out of circulation either when you spent them (although they can be manually destroyed, just as amounts of cryptocurrency can be "burned" including Bitcoins if devs wanted to do that).
You are right. The only time any kind of fiat is ever taken out of circulation is when the banks decide to replace them,,, to my understanding this is usually when they print new notes with new security, when they redominate or when they destroy bank notes that are too old/damaged. And this is always replaced, so circulation never goes down.
In fact, saving dollars in fiat in bank account causes new money to be printed as they always want money to be circulating in the economy. Hence when you save $100 in a bank, and the bank has $100 in credit, it loans out $100 to someone else. That borrower withdraws $100, your $100 still sits in the bank, but the bank orders $100 more new notes to be printed to give to the borrower.
This is fiat in a nutshell. $100 becomes $200 like magic.
