I think that if we reach the 1mb limit and don't upgrade with a solution, then the spontaneous order will create fiat currencies backed with bitcoins, in order to reduce the amount of transactions in the bitcoin network.
I'm not so sure this is a bad thing. These ad-hoc "fiat" currencies may be created with unique properties that make them better suited to the task at hand than Bitcoin. For example, a private payment network that provides instant confirmation and requires no mining (relying on trust in a central authority).
It is a bad thing because even when you may know the amount of deposits they have (since you can audit the blockchain), you don't actually know the amount of notes they will have emited, so eventually this will drive us to a fractional reserve system again.
That's what i think.