This is probably one of the most common criticisms that I hear about bitcoin. I think this is because many hardcore bitcoin believers at one point wanted this to happen, now its just a far-fetched expectation. More seasoned investors all agree that fiat and cryptocurrencies need to co-exist, which is currently happening. As for your hypothetical situation, we can only assume that Bitcoins would derive their value from the trust people have in them. But then again, its very unlikely to happen.