In the fractional-reserve banking system, a bank can produce a loan in excess of it's reserve currency holdings.
The money multiplier tells us how much money is created from each new unit of reserve currency created.
If a bank holds no extra currency, currency holdings are zero, then the money multiplier will be the direct inverse of the required reserve ratio.
That is, if the direct reserve ratio is one tenth and currency holdings are zero, the money multiplier will be 10.
If currency holdings are greater than zero then the money multiplier will be less than the inverse of the reserve ratio.
Banks can lend any amount to each other.
The simple concept of the money multiplier is that banks will lend as much to each other as possible in an attempt to make as much of an interest premium as possible.
When banks do lend to each other in this manner, the resulting creation of money places the money multiplier at the highest possible value it can have for a given reserve ratio.
When banks lend conservatively, the rate of increase of money is reduced at a greater rate then the reserve ratio allows for.
The currency-to-deposit ratio must represent the amount of physical currency that exists versus the amount of money that exists as bank deposits.
We do know that the more money that banks have, the more money banks can create through loans.
Thus, we can conclude that the more currency is not in banks, the less money they can create.
The less loans banks can create, the smaller the total money supply must be.
This is because the growth of the money supply is based on the bulk of the money supply being located in banks.
In terms of total deposits, an increase in the currency-to-deposit ratio must represent either an increase in currency or a decrease in deposits.
Thus, this increase either represents less total deposits or no change in total deposits with an increase in currency.