Commercial banks are given the ability to create money (credit) by the RBA. As such, they are an extension of the system and this creation function is crucial to the operation of the economy.
We dont have a fractional reserve system in Australia, there is no reserve requirement - banks just need adequate reserves. If banks create credit, and the system is too lacking of reserves, the RBA will simply add them, and this is how the credit base expands.
Implementing what you propose would choke the economy and unemployment would skyrocket and so would interest rates.
