in the future, will there really be a need for fiat currency? Government can collect taxes in crypto, determine how to allocate it, and spend it in crypto. Ppl can receive salaries and do all commerce using crypto. Loans can be done in crypto. Fundraising can be in crypto. Sure, problems have to be worked out in terms of scalability, does it have to be completely decentralized, etc, the value has to become more stable. But theoretically, is there any reason to have fiat in the future?
It has been established that governments can now do taxation without representation by printing more money (which is a tax on everyone holding the currency), instead of trying to get a bill passed that allows it to increase the tax rate. With crypto this would be no more. All increased taxation would have to pass a vote.
From an economic standpoint, the idea that a country can stimulate its economy by adjusting interest rates is tenuous. There is just as strong an argument that lowering interest rates has caused speculation and bubbles, with calamitous results. In a crypto market economy, capital will flow from where it is needed less to where it is needed more.
What you're proposing is essentially a government controlled crypto, where they are able to keep an eye on the network in order to manage taxation better, introduce monetary policy more directly, etc. etc. It's definitely something that is foreseeable.
In that case, wouldn't it still be a fiat currency, as there isn't a limited supply and still controlled by a government? It's just in a different form. Not in paper, but on the blockchain.
Fiat is definitely not necessary for the economy to function. I mean, humans did not start using fiat until a few centuries ago, and before that, commodity based currencies are used and there were much less economic crises, in fact. A bitcoin based economy wouldn't be impossible at all. However, governments round the world will push their currency and try to back the value of their own currencies, regardless of what progress crypto adoption has made.
As much as I agree with the first part of your post about a governmentally controlled crypto being just another form of fiat (since this is what I have been saying here for years myself), I as much disagree with the second part of it where you claim that the economy doesn't need fiat. It was the case a few centuries ago when, as you correctly noted, commodity-based currencies had been used universally. Actually, they were based on precious metals (mostly silver if we are talking about Europe), but this is irrelevant to the point in question. In the simplest of terms, economies didn't switch to fiat currencies just for kicks. In fact, it was inevitable, kind of objective necessity if you please. Hard currencies were an insurmountable obstacle to a steady economic growth, so no surprise that such currencies were completely abandoned eventually.
In other words, the modern global economy, given its complexity and the level of interdependency between its parts, simply cannot function on hard currencies as they will wreak havoc in financial settlements throughout the world if we assume for a moment they get introduced again.