Reserve should have a capital 'R' sorry Clark in the title. I meant how does it work with Australia's central bank?
http://en.wikipedia.org/wiki/Fractional-reserve_banking Money creation The process of fractional-reserve banking has a cumulative effect of money creation by banks.[4] In short, there are two types of money in a fractional-reserve banking system:[6][7][8]
central bank money (money created by the central bank regardless of its form (banknotes, coins and electronic money loaned to commercial banks)) commercial bank money (money created through loans in the banking system) - sometimes referred to as chequebook money[9] When a loan is funded with central bank money, new commercial bank money is created. As a loan is paid back, the commercial bank money disappears from existence.
The table below displays how loans are funded and how the money supply is affected. It also shows how central bank money is used to create commercial bank money. An initial deposit of $100 of central bank money is lent out 10 times with a fractional-reserve rate of 20%. This means that of the initial $100, 20 percent of it, or $20, is set aside as reserves while the remaining 80 percent, or $80, is loaned out. The recipient of the $80 then spends that money. The receiver of that $80 then deposits it into a bank. The bank then sets aside 20 percent of that $80, or $16, as reserves and lends out the remaining $64. As the process continues, more commercial bank money is created. To simplify the table, a different bank is used for each deposit. In the real world, the money a bank lends may end up in the same bank so it then has more money to lend out.
