If you can track its history, how can it be fungible?
Being able to track the history is a privacy problem, not a fungibility problem.
Are you saying btc coming from a certain mixer/casino and binance are the same? Many exchanges surely don't treat them the same way. Coinbase for example don't like it if your coins coming from an online casino (so I've heard)
being something (such as money or a commodity) of such a nature that one part or quantity may be replaced by another equal part or quantity in paying a debt or settling an account
According to this description, btc isn't fungible because coinbase will refuse any btc originating from a casino while they'll accept if its coming from somewhere else. Why is that? These coins have the same everything except for one thing: their history. You can't identify a gold coin's history as you do it with btc.
If you can track its history, how can it be fungible?
Being able to track the history is a privacy problem, not a fungibility problem.
Nobody is using monero, gold/silver coins to purchase something so the gov don't care about them.
Off-topic, but Monero is pretty neat currency, and used quite a lot as medium of exchange lately. (Not as Bitcoin, of course)
Not by the general public. No big business accepts monero. I don't know (m)any at least I can say that much. People do p2p deals probably.