No merchant accepts it. I can't use it to buy goods or services. I can maybe trade it peer to peer for bitcoin or fiat, but I can't use it as a currency.
Yes, you can't. As long as the government says no, you're forbidden to accept it as a payment method in your store. But, you still can use it as you said. Trading BTC for XMR, XMR for BTC, back and forth. It still hides your footprints and can't be prevented from a government.
So, if you (as a government) decide to accept Bitcoin in your country, you ought to ensure there's no easy way for your citizens to bypass your traceability. Do you still think that having Bitcoin globally adopted instead of a CBDC is a possibility? I highly doubt it.
As I said above, the vast majority do not retain their privacy.
Still, there's a decent percentage of people who have found ways to retain it. With a CBDC, you've covered those too. Besides, if it's possible to retain privacy, what makes you think the world won't start educating each other?
Bitcoin as a currency, is nothing, but a threat for the government. They'll find their way to introduce a far more regulated currency for the sake of the children no matter the demand it'll have. As you said;
The government don't care.