This is erroneous. The credit created when a loan is made by a bank becomes income for sellers when loans are used for purchases (the only reason for getting loans in the first place). At that point that credit is comingled with all other money. The repayment of the loan is income for the bank, none of which is needed to ‘replenish the vault’ because no money was taken from the vault to make the loan (though some of that income might need to be retained by the bank for compliance with capital or reserve requirements).

So in making loans banks create money that borrowers are allowed to use, which amount of money must be returned to the bank — plus interest: sweet deal for them. For accounting purposes, a loan is an asset of a bank; that asset is what’s “extinguished” as the loan gets repaid. (It’s all about ‘keeping the books [theoretically] balanced’ throughout the economy.)

[Money (as currency, not credit) is also created when money is created for the central bank to use to purchase debt issued by the central government. The only money that gets created without additional debt being involved is in ‘quantitative easing’, in which currency is created for the central bank to use to purchase other assets.]

At present, money can be in circulation or it can be held in an account (or put under a mattress, etc.), but it cannot be "extinguished." (Even if, as has been done as a last resort to put an end to runaway inflation, a government ends one currency and starts another in its place, the old money is convertible to the new at some rate of exchange). It could be under a mattress in another nation — or just plain lost — but unless money has been burned up or melted, once it has been created, it is somewhere on Earth.

That is why the creation of money generates a permanent threat of inflation. Combating (even potential) inflation means restricting output, with its own problems for society: higher unemployment, more poverty, less tax revenues (but with the same tax rates).

I definitely agree that a new approach to supplying nations’ economies with money is desperately needed.

For any nation’s existing economy to function optimally as a system there must be a sufficient supply of money constantly being created, but without involving debt. The proposal this author favors accomplishes that.

There must also be a mechanism for taking excess money that is not being used out of the system permanently (rather than have it accumulate endlessly in the economy). The proposal this author favors does not accomplish that. Like the current system, to combat inflation money would be (hopefully) captured by the managers of the system (the efficacy of the proposed system in that regard is genuinely open to question), but the money would still exist.

One alternative approach to supplying nations’ existing economies with money that is not noted in this article is available for consideration in “Same Economy, Way Better Outcomes for Society”[in a form primarily for economists: “Paradigm Shift”] (both here in Medium).

It would eliminate all of the societal problems associated with any nation’s existing economy (economic instability, unemployment, poverty, taxes, public debt, and unsustainability). It would also permanently remove excess money that was not needed from the economy (while constantly replenishing the supply of money without involving debt). The money removed from the economy would come from, presumably, large businesses, after all expenses had been met — including (unlimited) compensation for all employees, to include senior executives — and a plentiful amount of money (i.e., the annualized amount of the largest quarterly earnings the business had ever achieved) set aside by the business.