for making this question clear let's create a simplified world when there are only 3 private banks (bank A, bank B, bank C) in the world, and 1 central bank. let's also assume that all the citizen in this simplified world have all their money saved in those 3 banks.
let's also assume each bank has this capital inside:
bank A : 50k dollars
bank B : 30k dollars
bank C : 70k dollars
now let's assume bank B ask for a loan to the central bank of 20k with an intrest rate of 0.7%.
logically bank B can only take money weather from bank A or C to pay back the loan to the central bank. and so it does.
but this takes the money out of the system, and back to the central bank with that 0.7% more.
now let's repeat this process over and over again, it will reach to a point where there will be no more money on the system..then what happens?
the central bank prints more money and make another loan to pay back the other loan?..
and over and over again?