I see you are repeating something patently wrong and even adding some equally wrong "spice" to it, like that cash notes are non fungible by design, which is somehow "literally an inseparable part of their physical existence". This despite currency (in any form) predating the formalized concept of fungibility.
Money is fungible by every (literal) definition of the word, whether banknotes or coins. Being fungible doesn't refer to the physical aspect of being absolutely identical but to its value. Money exists to be fungible, fungibility is literally one of the big things that make money work. Going even further, money is probably one of the few things equally fungible whether new or used, and sometimes even old/outdated (think retired currency which can be converted to currency in circulation).
Whether coins or banknotes, they are interchangeable from one to another regardless of serial or the year stamped on them. And almost any other two new "identical" products are just as fungible: two loaves of bread, two planks of wood, two pencils, or two cars (not the case for used products). They're all mass produces, quasi-identical units.
And the serial numbers? They're used mainly for uniquely tracing the note and don't affect the fungibility in any way. The proof? Randomly pick a banknote every time you pay for something. If it works every time either you're the luckiest person in the world, or they're completely fungible.
Dollars have serial numbers does that mean they're not fungible? Does the author know what fungible means? Banks block transactions all the time to/from flagged sources.
That's more or less like saying dollars aren't fungible because you can check the serial number on a bill to see if it matches one that was reported stolen.
Fungibility has nothing to do with dollar bills and everything to do with dollars. You can't make a withdrawal from a bank after two years and ask for the same dollar bills back that you deposited.
The same can be true of dollar bills. A bag full of dollar bills from a drug deal is fungible with a bag full of dollars from your salary. But you can be arrested for the former, and not the latter.
Dollars are fungible with dollars ($1+$1=2$), NFTs are not fungible with NFTs (1NFT+1NFT=1NFT+1NFT).
So, it's paper money, but one that won't survive heat or strong electrical fields, and that you need to use with your phone. And will lose all value if the central repository goes under. And is not recyclable or efficiently burnable.
There are fungibility surprises in the west, also.
In the UK, one sometimes runs across banknotes issued by banks in Scotland, which generally circulate like those issued by the Bank of England, but have some technical differences.
Many years ago, I had a cab driver in London who very adamantly refused to take a Scottish pound note by way of fare payment, and as I later learned, was well within his rights to do so.
It's sort of the inverse of the situation described in the article -- Scottish and Bank of England notes are technically not fungible, but are mostly treated as if they are, with a few exceptions, whereas the article describes notes that technically are fungible, but are treated as if they are not.
Being fungible does not imply that something does not have a serial number or identification number. For example US dollar bills are fungible but they have serial numbers.
Cash is kind of fungible, but not really. Every bill has a serial number, so every bill is unique. This is what it means when money is "marked" in a police investigation, they give bills with known serial numbers to bad actors in a criminal enterprise and then recover the bills at the other end of the enterprise proving the connection.
In common practice it's fungible in the sense that one twenty dollar bill is as good as another. In edge cases though it's not quite fully fungible.
In all fairness, the paper on which $100 bills are printed is quite worthless as well.
I think ever since people have stopped using gold and silver bullion (after arrowheads and knives) as currency items, there has been this consensus that money has the value that people give to it, not the value of its material (or, in BTC's case, immaterial) representations.
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