It’s unfair that banks are protected from insolvency

Fractional reserve banking causes inflation not because people are aware of the deposit guarantee for bank credit (and have an understanding of the system) but because banks can’t go bust.

People don’t need to think or assume the bank is acting like a full reserve bank they only need to know (and trust) that bank deposits are always redeemable for cash. And their trust is well-placed if the government has made such a promise. If the government announces that some fiscal media (such as bank credit) is always redeemable for cash then there will be inflation not because the value of cash is known to derive from government coercion but because cash can now be worth no more than bank credit. Someone holding credit can now compete equally with holders of cash (when making purchases) because the seller of the goods will have no reason to differentiate between the two and prefer cash. The ability of the government to make good on its promise is sufficient whether or not the value of cash derives (or is known to derive) from exclusivity or government coercion.

If they have deposit insurance banks will remain cash flow solvent even when they are balance sheet insolvent.

The insolvency of the banking sector is not a justifiable reason to cause inflation and increase the money supply. It’s unfair that people who use reliable (full reserve) banks have their savings stolen via inflation because others have used an unreliable and insolvent bank. Bailouts and protection from bank insolvency is unfair to savers.