This is a logical end game to centralised money, Federal banking or in Europe the ECB. The definition of capitalism is worth held by the people and with the producers, ie. normal business operated by private people. When each note is tied to politics with nothing fixed in demand it can just be altered to suit the 'needs of the many' Overnight that worth that was in the notes is switched to keep a bank alive somewhere and the people pay for what politics thinks is correct
When politics are tied to money in a way that even the "officially approved" government notes are subject to arbitrary confiscation, trust in government will erode. Even worse, businesses might feel that there is no legally safe way to operate and close shops. Entrepreneurship will be seen as not worth the risk. The economic damage can be highly significant and outmatches the potential short term benefits for the government of making a quick buck to remain solvent to a great margin.
Some people will even agree all money belongs to government, people just lend it. When they talk of QE I see thats how it'll end up, the books will be balanced by deducting a certain interest payment chargeable to every holder of dollars. I dont think they can repay all government debt without the attitude of making all of the population pay for it via Taxes; not income that year just every penny you ever earnt is reduced
The population will pay via taxes. But it will not be direct taxation, it will be indirect taxation by printing more money, sugarcoated as "Quantitative Easing". That's a much better option for the government than direct taxation, because the cause of the negative impact for the people can be disguised. Debts will be payed at ease with newly generated money, but the value of fiat money will deteriorate because of it. It is already happening in front of our eyes.
ya.ya.yo!