They don't, you can use any medium for exchange. They have monopoly in deciding what is and what isn't an official currency. As for the rest of your question,

They don't, you can use any medium for exchange. They have monopoly in deciding what is and what isn't an official currency. As for the rest of your question, the people give them the power as part of the democratic process. Many people realized that whether they like it or not the little protection they get from a government is better than nothing. And it's enough to look at people's reaction when they get swindled out of their completely unregulated coin: ask the government to fix it and punish the swindlers.