It seems like the government issuing their own currency still isn’t really the issue in this thought experiment…

It is though, since they can debase that self same currency as they see fit. This fundamentally changes the playing field when negotiating your taxes with the government. The only reason USD has any value at all is because it's what everyone has to pay taxes to the US government in, and what US bonds are paid in.

What you’re saying is essentially “imagine a government with the power to create laws that allow arbitrary imprisonment with no recourse, that would be tyrannical”, which, yes, but that only has to do with the currency because that’s what you chose for your example.

Said government could pass a law stating that all citizens must be in two places at once, and achieve the same effect.

As mentioned in a previous comment, I'm saying "Imagine a government without broad power over general welfare". This was the US government until 1936 with United States v. Butler. I don't think it would be a catastrophe to reverse this decision again. It seems that in spite of best efforts, the US has failed to preserve the very meaning of liberty, as it was initially envisioned, from total deterioration even in its very definition.

The material distinction when the United States was founded wasn’t whether the state in general had broad power over the general welfare, but whether the federal government would. State government did have such power.

Yep. The bill of rights didn't even broadly apply to the states until the 20th century. Have fun with that.

https://en.wikipedia.org/wiki/Incorporation_of_the_Bill_of_R...