Thanks for this analogy. I've spent a lot of time explaining that the fact that a currency is officially supported by a state makes all the difference, but your comparison is just perfect.

This may be true, but the government also has the power to control inflation, which limits the purchasing power of those dollars.

See: Venezuela, Zimbabwe, Germany ~1920

Debt instruments are based on faith and credit.

Those events are indicative of scenarios where the market lost confidence in the faith and credit of those nations. When you can't sell bonds anymore, you implicitly borrow by devaluing the money.

That's where the derogatory treatment of "fiat" money by goldbugs and cryptocurrency advocates falls down. A government can declare that something is worth a dollar, but the market determines what a dollar is worth.

> A government can declare that something is worth a dollar, but the market determines what a dollar is worth.

So what happens when the government declares that a candy bar is worth a dollar, but the market determines that a dollar is worth half a candy bar?