If we think of the cash in the economy as the typical form of money, the banking system, collectively, has much greater quantities of deposits than exists cash in the system. This is because each time money is loaned out, a new deposit is likely to be created by the borrower, or the person who receives the funds used by the borrower for the purchase, in which case deposits increase.
The banking system recycles the money which allows a new deposit to be created, hence reducing the reserve ratio.
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