Anonymous commenter made this interesting comment in my previous post on the gold standard. "Also, as far as I understand it, most of the people advocating a return to the gold standard advocate it primarily as their recommendation if their must be a government mandated monopoly on currency. Most of them prefer an open marketplace in currency, where anyone could use whatever they like as a medium of exchange, and banks could print certificates tied to real assets usable as paper money (whether it be gold, silver, palladium, yap, or cigarettes, though those last two are included primarily for historical reference). This would not include the same problems you've included above, but still answer the criticism of fiat currency by allowing for currency that was backed by some tangible asset rather than being provided value through the government's power to tax."
My beef with a multi-currency system is the difficulty of ensuring orderly currency issuance. We'll have an economy with so many currencies being issued by different private banks, backed by different assets.
At least, with only one monopoly issuer, we can easily control it by making it more accountable to the people who use the currency it issues (Though this means making central banks more transparent than they are right now). If we have many private banks issuing their own currencies, it would be more difficult to manage. What happened to securitized loans issued by shadow banks could also happen to the currencies privately issued by banks. With no state backing them, privately-issued currencies could just as easily lose value during a run, and we could end up with financial crises even worse than we had in 2008.
For example, if we cannot assure that a lone central banker, whose actions are readily seen by all, will never overprint a monopoly currency, then we cannot also assure that different private bankers will never overprint a currency, to the point that they cannot back it anymore with their holdings of tangible assets.
I would probably be open to the idea of granting private banks the license to issue private money, but these private currencies should be complemented by state-backed money. Sure, there could be sophisticated investors out there who can ascertain the solvency and veracity of an issuing bank's claim, that its holdings of real assets can back its privately-issued currency. But the typical currency user, who just needs a readily usable medium of exchange, or store of value, likely will not be in a position to know which bank will still be around to give him the real assets, should he ever decide to tender his currency notes. So he should have the option of only accepting a state-backed currency, so that he at least has the peace of mind about the backing of his accepted currency (Even if this state-backed currency can be overprinted by an overzealous central banker. But that's a matter for a separate discussion.)
In as far as why a state-backed currency should not based on gold, I've already outlined it here. Plus I would add that the state's option to be able to spend more, in place of disappearing private spenders during times of escalating private sector desire to save, is an invaluable lifeline during a severe depression, and if we had a gold standard, government spending will only likely crowd out what little private spending is still there.