That's my favorite take in the entire thread.
The promise which governors and colonial assemblies made to the borrowers was primarily that the government would continuously spend the revenues brought in by interest payments back into circulation on local infrastructure, and that new loans would be regularly issues at low interest rates of 3-4%, so that the money needed by borrowers to repay their debts was easy to come by, and that the debt would not be held or sold to private lenders engaged in usury.
So accepting the scheme was a good deal to borrowers, and provided immigrant farmers with cash & credit which would not otherwise be available to them without borrowing form European lenders at high rates. The government acted as a public bank and the money was a public utility.
If a bank bought and sold gold to make a currency hit an inflation target, would that be commodity money or fiat?
So, do these bonds cover something or do they just paper over a huge systemic problem?
The question I expected you to ask is why people wanted the bonds, since all they're backed by is future dollars. The circularity is resolved by the fact that people know that there will be some demand from the government for dollars, since the government has outstanding dollar-denominated debt.
I think an important cause of demand you're missing is that people still need to pay taxes in dollars.
> the government would still need to exchange those bitcoins for dollars in order to pay its debts
That is not true. The government does not collect taxes to pay its debt, as it can simply spend its own currency which it creates. Taxes are relevant to spending in that it keeps dollars valuable.
Not if it wants to hit an inflation target.