Purchases you make with cash you got from an ATM become traceable to your bank account.

That only works if every single shop/service tracks the serial numbers, otherwise you have no way of knowing if they were exchanged somewhere in between.

You don't need to step very far from cash in hand before this becomes not just viable but ridiculously easy. Just feed notes individually into your bank-approved combined till/safe/note scanner.

I think you understimate the effort of requiring everyone - from large chains to street food stalls - to always use note scanners.

Bank? How many people selling fruit from their cart even use banks for their sales?

It's a very small graph.