The individual units of currencies and cryptocurrencies can to varying extents be tracked and seized by governments. Whether or not that is called fungibility or traceability or something else doesn’t change the fact that it could be done.
The serial number of dollar bills is not typically scanned each time it is used, but the US government could implement a law that required all businesses that receives dollar bills to put them through a serial number scanner if it wanted to. If such a law was implemented, then certain dollar bills could be marked for seizure. Then if you went to an ATM and a thief happened to steal your wallet afterwards, you could report them stolen and any shop that received the stolen dollar bills could be required by law to seize those bills.
Central bank digital currencies (CBDCs) could make it easier to track and seize “cash” depending on their implementation. Central banks and academics around the world have come up with numerous proposals for implementing CBDCs, some with protections against tracking and seizure, at least for small amounts, and other where the issuing central bank would have a complete picture of all transactions.
Whether or not units of a certain currency or cryptocurrency can be tracked and seized by governments varies over time with laws and tracking technology. New ways of anonymizing or deanonymizing wallets or units of a cryptocurrency show up regularly.
The original topic that this one was forked from proposed that it should be a goal for SAFE to keep the individual units untraceable and indistinguishable. Even so there’s an option to keep a receipt for a transaction and in theory governments could try to implement a law that required people to keep receipts of all transactions. For SAFE then, if it can be implemented in such a way that even with receipts, it is not possible to prove whether or not a transaction history is complete, it has reached the goal of being a cryptocurrency where shops or exchanges cannot be forced by governments to seize individual units based on any previous owner or the actions of a previous owner. Either exchanges and registered businesses will be banned from transacting with Safe Network Tokens completely or they will never be required to seize individual units based on their transaction history.
I don’t really have an opinion as to whether or not it is “correct” to use the term fungibility to describe a governments (or other people/organizations) ability to track and potentially seize individual units of a currency, but the fact is that many people are using the term for this purpose.
The term fungibility has been used in connection with blacklists since before Monero was released.
Some examples:
Coindesk article from 2013, Why Bitcoin Fungibility is Essential
Academic paper from the University of Munster, Towards Risk Scoring of Bitcoin Transactions, from around one month before the initial release of Monero.
Gregory Maxwell used the term fungibility in this way in his first post describing CoinJoin back in 2013.
Whether or not it is technically correct, people have been using the term fungibility in this way for many years and will likely continue to do so, which kinda makes this debate moot.