Except that people don't actually need to hold NewZims. If they don't trust the currency (and they won't, not in Zimbabwe), they'll work for dollars, save in dollars, and then on tax day they'll convert just enough dollars into NewZims to pay the taxes. That way they're safe from NewZim currency manipulation.
The only people who'll get paid in NewZims are government workers, and when they get paid they'll rush out to convert their NewZims to dollars that people are selling to pay taxes.
The only way this cycle stops is if the hassle and expense of currency transactions outweighs the distrust of the government's stewardship of the currency. Until that time the NewZim is trading at some huge multiple of the official exchange rate.
There was a really interesting Planet Money episode from NPR about how introducing a new currency saved Brazil from hyperinflation. I'd highly recommend it:
They invented a new "virtual currency", stabilized it, denominated goods and services in the virtual currency, built public trust in the conversion rate between the (stable) virtual currency and (unstable, still experiencing hyperinflation) regular currency, and then finally switched the country over to the new currency.
> Four economists wanted to create a new currency that was stable, dependable and trustworthy. The only catch: This currency would not be real. No coins, no bills. It was fake. "We called it a Unit of Real Value — URV," Bacha says. "It was virtual; it didn't exist in fact."
> People would still have and use the existing currency, the cruzeiro. But everything would be listed in URVs, the fake currency. Their wages would be listed in URVs. Taxes were in URVs. All prices were listed in URVs. And URVs were kept stable — what changed was how many cruzeiros each URV was worth.
This was not the only fix, though, as I understand it. The government also had to change its policies that were causing hyperinflation in the first place. However, inflation was continuing more than it should have because the public had lost trust in the currency and assumed it would debase in value every day. The finance ministry needed to regain trust, and the new currency and currency swap allowed them to do that.
Great story I'm gonna check it out ... Interestingly, though, all money is virtual. In fact, you can think of a currency as a unit of account the same as a metre is a unit of length.
Even in currencies which have notes and coins they only make up a single digit percentage of the total volume of money.
When governments spend, they do so by crediting accounts at a central bank account (ie. They spend their own currency into existence) and taxation is the opposite of this.
The upshot of this is that governments don't need to tax before they can spend (in fact it's the opposite), are not constrained in their fiscal policy by "raising revenue" and have danger of insolvency so long as they only issue debt denominated in their own currency.
I can't reply to your comment, so I'll reply here (I'm not crazily replying to myself ... )
People need to obtain dollars from somewhere. If the total tax liability in NewZims exceeds the number of dollars obtainable then people will have no choice but to use it.
Also of note is that strong banking institutions are invaluable in this process. If people owe money in NewZims because of money created through private sector lending they'll also need to obtain them from somewhere in order to pay those debts. Making it illegal for banking institutions to hold accounts in currencies other than the national currency is also a means of avoiding this problem (ie. if people want to use banks they need to hold NewZims).
Of course this all hinges on the ability of the sovereign to actually impose sufficient liabilities on the populous in the first place and it would take time for the new currency completely replace the foreign ones but it's doable and is the only road to long term repair of a nation unless they're accepting what amounts to being colonised again.
You can't have sovereign government without sovereign currency.
The easiest way to do that in a situation where you are introducing a new currency is to impose land taxes in NewZims.
How will land owners obtain NewZims in order to pay their taxes? They will grow shit and sell it to people for NewZims.
How will people obtain NewZims to buy the produce? By working for the government which will pay in NewZims.