Excellent reply -- a small but important (and elegant, I think) proviso is that in the king-minting-coins scenario, it's not actually necessary to require that citizens exchange goods for the coins; requiring them to pay taxes in the coins accomplishes that on its own, if the only initial source of coins is from the soldiers. Their utility in paying taxes (which, because everyone has to pay taxes, extends to general utility as a medium of exchange) explains the difference in value between the coin itself and the metal content. (I recall a lot of interesting anthropological research on this in David Graeber's book, Debt: the First 5000 Years.)
There are some surprisingly direct debt->currency relationships that persist today; for example, the Bank of England, iirc, retains the ability to print money because it loaned £2 million in silver to the crown in 1697 or something like that (no guarantees on sums and dates) -- in other words, British currency is literally commodified debt owed by the crown (which is presumably the most trustworthy party in terms of ability to pay) to the Bank of England, which the bank has the power to distribute.
> Excellent reply -- a small but important (and elegant, I think) proviso is that in the king-minting-coins scenario, it's not actually necessary to require that citizens exchange goods for the coins; requiring them to pay taxes in the coins accomplishes that on its own, if the only initial source of coins is from the soldiers.
Historically, another piece of legislation usually followed governments trying to force their money into circulation: the concept of "legal tender". A currency having "legal tender" status means that all debts are payable in this currency, even those incurred in a different currency/money (eg. gold).
For example, in the US in 1862, government-issued currency was given legal tender status, to finance the Civil War. This act forced gold creditors (people who were owed gold) to accept payment in this government-issued currency: https://en.wikipedia.org/wiki/Legal_Tender_Cases#Legal_Tende...
This essentially destroys the credit market for competing currencies. All debts can be paid in government-issued currency, and few creditors wished to lend out gold, only to be paid back in paper notes, albeit government-issued.
As far as I can see, free currency competition requires both:
1) The ability to choose the numeraire (eg. Japanese Yen, Euros, Dollars, gold, silver) yourself when reporting your taxes, and paying taxes in the chosen numeraire.
For example, say I hold an amount of US Dollars, and my chosen numeraire is gold, then if the gold price (XAUUSD=X) falls, and I buy gold using these dollars, I need to pay taxes on a capital gain, as the gold price of these dollars has gone up since I purchased them ("gold price of dollars" is the inverse of the "dollar price of gold" (the latter being XAUUSD=X)).
2) The abolition of legal tender law. Legal tender law interferes with the credit markets of competing currencies, by declaring that debts incurred in any currency/money, can be extinguished using government-issued legal tender currency.
So, in short, requiring capital gain taxes to be paid using government-approved currency as the numeraire disincentivizes people from hoarding competing currency, while legal tender law disincentivizes people from lending out competing currency. Both these activities are needed for any type of money to function as money.
As for 1: This is not practically possible, and/or forces the government to artificially fix exchange rates between currencies, which would defeat the whole point.
Why? Because huge parts of the law deals with absolute monetary terms. Gasoline taxes, for example, are typically a fixed amount per litre. Tax exemptions are usually of the form "no tax below $X amount of $currency". Going beyond tax law, you have the same issue with fines. Reasonable people can prefer this kind of absolute amounts in certain areas of the law, but this forces the government to either "pick a winner" (i.e. settle on one currency it uses in its legal texts) or to artificially fix exchange rates (by giving the amounts in all existing currencies).
This pretty much means that currency competition cannot exist.
The much more important point is this though: Currency competition does not serve a useful purpose. It only adds friction to the everyday economy. (Removing this kind of friction is a big reason why the Euro is still pretty popular with many people despite the macroeconomic mess it has lead to.)
There are some surprisingly direct debt->currency relationships that persist today; for example, the Bank of England, iirc, retains the ability to print money because it loaned £2 million in silver to the crown in 1697 or something like that (no guarantees on sums and dates) -- in other words, British currency is literally commodified debt owed by the crown (which is presumably the most trustworthy party in terms of ability to pay) to the Bank of England, which the bank has the power to distribute.