OK, now you're talking about inventing a new altcoin that introduces censorship, governance, and control. This has already been done a number of times, and they all failed.

Bitcoin is the ultimate fiat in that it's not backed by anything tangible. The bitcoiners will say that the intrinsic value of bitcoin lies in the value the network provides, eg. facilitating uncensorable, permissionless transfers across borders. It is definitely not a given that a new coin without this utility will be a success. I'd bet against it given the history of altcoins that have attempted to do it.

Oh, I think i didn't understand your comment, sorry. In the scenario laid out by the article the Fed runs the same software as any other miner, they simply ignore transactions that are not depositing bitcoin into their wallet, they refuse to record those transactions in the blocks they mine.

This is completely compatible with the bitcoin network, any miner can do that today without forking the chain. However, if the Fed had say 85% of all hash power it would be extremely expensive for any other miner to mine a block, so the Fed would gain complete control over the network over time.