Well, there WERE competing currencies in place for a time. The advent of paper currency comes from privately issued banknotes, which were legal in the UK until the Bank Charter Act of 1844.

The reason they pushed for it? Basically, private banks were printing too many banknotes and causing bouts of inflation. This was in a time when currencies were still backed by gold.

Here is the speech by Robert Peel that convinced Parliament (as well as myself) that this was a good course of action to follow: http://www.historyhome.co.uk/polspeech/bank.htm

If you made a papery currency, what is it backed by? A big pile of gold? Do you have a lot of men with guns defending that big pile of gold?

What is backing a fiat currency like the $US? Trust that the country will continue to exist? The might of the armed forces? It is a number of things, but the conditions are very difficult to reproduce without a lot of cold, hard steel moving around at high speeds through land, sea, and air.