Deposit creation causes price inflation because the quantity of bank deposits affects the price people are willing to pay (the goods they are willing to give up) to receive cash. Someone with a large number of bank deposits will pay less for cash.
Bank deposits mean that, certainly in normal circumstances, the owner is able to gain access to that particular quantity of cash. Their attitude to (the value of) cash will be unaffected by considerations of what might happen in the scenario of a banking failure because (perhaps, we can only guess) they don't think it is worth taking precautions... More precisely, there is not yet a credit spread between cash and bank deposits.
If there is a banking failure we might speculate that even physical cash would then be of little value.
If cash (we anticipate) retains its value in a post-crash situation then there is less reason for deposits to cause price inflation. If there is a significant credit spread between credit and cash then extra credit would not affect the price of cash to the same extent.
So then, why does deposit creation affect the price of cash? It can only be because we assume that if the banks fail, then even cash will be worthless; or that the system will never be tested.
That deposit creation causes price inflation suggests the banking system will never be tested, although it may be replaced; made obsolete since nothing can stand forever. This suggests a new currency will emerge.
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