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This isn't really true. It kinda works in reverse. You put $100 in your bank, and the bank has to keep 10% in reserves (though I think right now the US reserve rate is suspended; most countries have no reserve rate). The bank can loan out up to 90% of your deposit. So let's assume they do, they take $90 and loan it to Bill. Bill takes that money and buys a TV from Bob. Bob puts that money in the bank. The bank keeps $9, and can loan out up to $81. And this cycle continues, until there's $1000 out there, all being held in deposit.
Anyways, a bit unrelated. Banks had long lobbied congress to pay interest on the money banks were required to hold in reserves. Congress, either right before, or right at the beginning, of the last financial crisis passed that law. But.. they didn't limit it to required reserves. They allowed any reserves to get interest paid on them.
So the financial crisis rears its head, and what do banks do? They stop loaning out money. The Federal Reserve wants to loosening up the bank's wallet, so the start Quantitative Easing, where they basically buy shit on the open market, with the idea of getting more money into the economy. The hope is that the banks will become flush with cash and loan it out. But banks did something utterly remarkable; they just shoved all that cash into reserves, and started collecting interest on it. So the Federal Reserve did more Quantitative Easing. And banks held that money in reserve. Turns out a couple percent on all this money is far better than the risk of loaning it out during a major recession.
Anyways, that little difference, between giving interest just on required reserves vs all reserves, extended the recovery period and kept interest rates low. And the Fed struggled with Quantitative Tightening (where they sell all the shit back), because every time they'd sell stuff, prices would fall.
So the US could probably (if it already hasn't?) solve a lot of their issues by making one little change to the law, which would make the federal reserve much more effective. Of course you wouldn't want to do that right now (or would you? unleashing trillions held in reserves? lol).
As for your idea, is it much different than just having everyone write a trailing 0 on all their bills and coins? The fear here would be that you undermine long term contracts. If I loan you $100, and expect you to pay back $1/month, and then the next month the government says every dollar is now worth ten, then I've just lost a lot of money. You pay me back $10 (now 'worth' $100) and keep the $90 (which is now $900). Of course the policy change wouldn't be that drastic. But even still, a lot of long term debt is extremely sensitive to a percent of interest. Add a percent to your mortgage of 30 years and that could cost you $20k per $100k you borrow. So if long term lending becomes more risky, less uncertain, banks are going to charge higher rates, or move towards short term lending.
You also create an environment where the average person isn't going to save much money, because the value of $1 now is greater. So people have an incentive to spend, and an incentive to take on debt, and an incentive to hope politicians bail them out.
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