I don't think you understand the situation at all. Money is a trust / an IOU to the one who print them. When a gov issue money, they back the money, declare them as the default currency for the country. Fiat money when being used for things like paying tax/debt, people cannot reject those payments with fiat money by law. The one who issue money also take responsibility to stabilize them so that the currency can be used for trades. Do you know what it means the gov back the money? It means when another country want to trade with US, they can trust US gov that the USD will be accept and the US gov will try their best to keep the currency stable for fairness. US Gov can't suddenly deny USD like China declared all crypto transactions are illegal some years ago.
Bitcoin actually doesn't work at all not just because of it volatility but also because there is no trust to the people who mine them. It can be generated from my computer and I have no responsibility to buy it back and guarantee its value after I sell it to you for whatever price. I don't have any responsibility for its value. When a person is holding a bitcoin, that person is holding a trust solely to the market, hoping that people are still trading and buying it later.
In fact, many smart and higher up people actually knows bitcoin doesn't work and is more like a scam. That's why they are now pushing something like stable coin. Those are more like the real digital version of fiat money because those are backed by banks, institutions with their other assets and they take responsibility for the value.
Bitcoin is more like blank cheque. People generate them and use them to exchange for things but don't take responsibility for the value. The system only work because there are people keep believing it worth something just like many snake oil scams.
