Were bonds actually issued to the small business owners in this case? The article only mentions the nebulous "IOU's"
They're IOUs because the average person reading the stories about them won't understand what it means if they said they were bonds (they'd think commercial paper, if anything).
If you read hardcore financial papers, they're effectively bonds backed by the State of California.
Which means that they can issue bonds.
If a bond is tradeable on the open market, how is it different from currency?
In short: financial engineering has evolved a bit in the last 200 years, muddying some formerly clear cut issues.