[jerguismi]

Taxation does create demand for government currencies, but it doesn't necessarily make it more usable in commerce. You could do all your transactions in other currencies, and only convert to the tax currency when you need to pay taxes.

[jhanschoo]

Considering the first order effect, you are right. But because governments tax only in their currency, they have a vested interest in making their currency valuable. This makes the US dollar more reliable than your friend's IOU for a favor.

[AstralStorm]

Presuming you can convert freely and you're not actually paid in it. Soviet states and foreign currencies, does anyone remember that?