Q: So, how might governments (i.e. the banking system) maintain demand for their currency?

A: By requiring institutions to hold cash reserves equal to their alternative investments. It forces market participants to maintain a steady demand for their currency. Thus, even if the alternative currency rises in comparison to the fiat, participants must buy more of it, increasing its demand and reducing its supply.

Note that they don’t have the same reserve requirements for domestic bonds, commercial paper or MBS. These already keep demand for domestic fiat inside the economy, keeping it going.

What this means is that this proposed EU rule is a recognition that people are exiting, and they are grasping at ways to keep their currency propped up.

It’s not quite a “then they fight you” stage. It’s more like a “they are shitting their pants” stage.