As Snowden's leaks have revealed, our government isn't so trustworthy that we should be making it easier for it to amass ever more information about our personal lives. All of that warrantless NSA mass-surveillance was also purportedly done to "protect us from terrorism".
Also, unless you can convince all countries in the world to adopt this traceable currency system, terrorists will always be able to launder money by setting up legal-looking front operations (e.g., fake charities or businesses) in countries that have freer money systems. And since this system makes it harder for politicians to accept bribes, I'm guessing that it would have a hard time getting enacted in any country.
In the absence of a usable currency, I think people would barter, until the point at which a good that is commonly used in bartering becomes a currency.
Would you propose making bartering illegal?