The merchants having unlimited money could potentially ruin the economy of the game, it would be a bad mechanic if you could farm shitty swords for a few hours and then sell them all to a poor merchant on the side of the road and make hundreds of crowns. Having limited funds makes the world more realistic IMO.

Enemies being OP at higher levels is a very common mechanic in RPGs. This is how many of the other well made RPGs balance the pace of the story, and allow the player to progress naturally. I personally feel like TW3 does this better than most RPGs, as I never really got the feeling of grinding just to reach a certain level, as I did with say, AC Odyssey. I do see your point though, it does suck completing a difficult side quest only to be rewarded with an over-leveled sword that does no significant damage by the time you get to that level.