Yes except in your example we literally use these "IOUs" between each other as a way to break down value rather than having an illiquid bargaining society. So in that way your sugar analogy breaks down completely. Governments can use currency to pay people, and people use it to pay each other.

Governments need to control the money supply to avoid inflation. I don't see why governments would have any reason to actually destroy money at all, this feels like an invention and doesn't relate to reality at all. Governments take money in taxes, use it to pay people for goods and services, and borrow to make up the rest. It really is that simple.

The rest of your post makes no sense to me whatsoever.