Specifically, "reserve demand." People and institutions demand to hold a positive balance of the monetary good, and the aggregate sum of these reserve demands set the purchasing power.
The notion that fiat money has value because governments demand it in taxes, might set a non-zero value for the money, but it does not set a specific price level.
For instance, I could make a trade for dollars at the exact moment that I pay taxes, and it wouldn't matter what the actual value of the dollars is at that point. I would hold the dollars long enough to pay the taxes but no longer, so my reserve demand for the dollars is minimal. The effect on my finances is exactly the same if one dollar buys a pair of leather boots or a single shoelace.
So: positive value, but no specific purchasing power.
There is a reserve demand created because taxes are not due until some time after the transaction that created the tax liability. If you don't want to have exchange rate risk, you need to hold the dollars until the tax is due.
If you don't want to hold the fiat, you can always send taxes on a continual basis to the collection agency (most people do this with each paycheck, via the automatic withholding).
In the case of a rapidly inflating fiat currency, you would make the trade, since you are probably going to lose value holding the dying fiat.
The notion that fiat money has value because governments demand it in taxes, might set a non-zero value for the money, but it does not set a specific price level.
For instance, I could make a trade for dollars at the exact moment that I pay taxes, and it wouldn't matter what the actual value of the dollars is at that point. I would hold the dollars long enough to pay the taxes but no longer, so my reserve demand for the dollars is minimal. The effect on my finances is exactly the same if one dollar buys a pair of leather boots or a single shoelace.
So: positive value, but no specific purchasing power.