[treyd]

This is a great illustration of how it works. The people who sell me food, utilities, housing, all also need to pay their taxes, and that's why they take it as tender.

It can be a useful metaphor to visualize the economy as a web of interconnected loops of cashflows with "the government" on one side and the rest of the economy the other. By raising taxes it pulls some of its inbound ends of the loops tighter and by issuing subsidies/grants/credits and loosens up the slack on its outbound ends. It doesn't actually matter how much money "the government" has, because it's the final arbiter of how much money is actually in circulation, it only exists because it issues it. In theory it can play this game to achieve good social outcomes. In practice it's more difficult to predict far-reaching consequences of some economic action.

[XorNot]

It's also worth noting that the other resource a nation can require payment in it's own currency for is land - i.e. for both farming and mining purposes, both of which attract taxes denominated in local currency.

You open say, a hard rock mine somewhere in the US, you have to get mining permits to do so which are paid in...local currency.