There are several reasons fiat currency is beneficial if not abused.
1) When you peg your currency to a fixed point (such as gold, silver, or whatever), the amount of money you have available is fixed while the amount of stuff you have available to buy in the society changes. If you can not increase the amount of money available when you increase in the number of things available to buy, you end up creating a deflationary blip, which can quickly become a deflationary spiral (the great depression, the depression of the 1870's, the depression of 1830's, so on). Deflation is just as destructive... perhaps more destructive than inflation. The ideal would be a currency that held a fixed value compared to a fixed amount of things to buy, but with changing supplies of things to buy, changing populations and demographics of the population, you need a flexible currency to deal with the situation.
2) When bank panics happen, you need to be able to drop cash into the problem. Fiat currency allows the central bank to do that. The depressions that the U.S. has fallen into were primarily a seizing of the credit market which made doing business difficult if not impossible. The bank losses in the stock market crash of 1929 caused the banks to stop making loans to businesses. Because they could not make loans, businesses could not meet payroll or expand. That caused the widespread unemployment, the drop in demand, and so on. That is why the cash drops of the last 5 years were necessary and helpful. By making cash cheap and available, the credit seizing only lasted a couple of months, The drop was arrested, and credit was allowed to once again lubricate the economy. We were spared a second Great Depression by this quick and decisive action. Now, more can and should have been done to bring to accounts those who precipitated the crisis. But that is an issue of Justice, not economics.
Finally, you will notice that the great failings of currency have happened mainly after military defeat. There are outside things that can ruin a currency. A government can become irresponsible with Fiat Currency and use it to try to inflate themselves out of problem (or to buy lower taxes). If Guns don't kill people, Fiat does not kill economies, Irresponsible use of it does.
On point 1, there hasn't really been a hyper-deflationary event, I know of no currencies that have collapsed because they were worth too much. As for the Great Depression, a lot of it was caused by easy money and credit during the Coolidge administration
The Great Depression - Hans F. Sennholz - Mises Daily is an interesting article that helps explain the root causes.
The natural tendency for any currency is inflation. Why? Because when the value of it increases (deflation) the number of places where it can be profitably mined increases also. For example, consider the relationship between gold (being used as currency) and X (where X represents a desirable good with no substitutes), since it takes less gold to buy 1 unit of X, the value of gold in relationship to X has increased. Because of this, more resources will be devoted to increase gold production and previously unprofitable mines will be re-opened. Similarly, if the price of gold decreases, fewer resources will be devoted to mining gold and there will be less new gold entering the marketplace, so long as demand (population) increases, the price will rise. Barring any major discoveries, the price of gold will be relatively stable.
On point number 2, banking panics/runs only exist under the fraudulent framework of fractional reserve banking. By its very nature, fractional reserve banking is unstable and it is unsurprising that it eventually collapses. The proper move is not to create a central bank to help prop up this system but to move from an unstable banking system to a full-reserve banking system. If you had fractional reserve anything else, you'd be appalled. What if your stockbroker or mutual fund had fractional-reserve stocks?
There has been no government that has abstained from using the magical printing button and maintained a stable fiat currency. If those in power were omniscient and Omni-benevolent fiat currency could work just as well, if not better than commodity-based money. But those in power are not and I'm certain that they aren't looking out for my best interests.
And for those of you stocking up for a SHTF scenario, why not just leave? If it is clear that there will be an immediate (monetary, not something like a nuclear war or a worldwide zombie outbreak) SHTF scenario in the US, why bother living like its the 1880s struggling in the US, why not move to greener pastures? While undoubtedly a collapse of the US dollar will cause shockwaves around the world, there will be places that are much less affected by it.
Just look at the most recent "great empire" to collapse, the USSR. Of course freedom of movement was much more restrictive in the Soviet Bloc, but look at 1988-1991 in the US compared to the USSR. Those in the US watched in the comfort of their living rooms as violent protests and coup attempts broke apart the Soviet Union and Eastern Europe. Those in the USSR and Eastern Europe watched tanks roll by in person. While those in the West read about the devaluation of the Ruble, those in Eastern Europe faced it themselves.
If you can tell there will be a SHTF scenario I think it is much, much, much, much, much more prudent to flee the US than load up your AR-15s, break out the MREs and sit on your piles of gold and silver. Not that there's anything wrong with having those items, its very smart to store those things in case you can't leave for some reason, but I for one want to watch the collapse in some far away country in 1080p than smell the burning cordite.
