governments simply aren't interested in incorporating bitcoin. they can't deal with the fact that it is something they can't control. paper money will stay at least for another 10-20 years.
There are various system in terms of governemnt. So there are still possibilities for paper money to get involved in the bitcoin system. Because as a crypto-currency that deal with transactions it also needs a basis of value which is the dollar to it to have value for investments and trading. So it would be a good thing for both Bitcoin and the fiat if it become the time where it would help each other to experience development and growth.
I guess nowadays bitcoin and fiat were compatible to each other, but it's not possible to eliminate cash type of transactions due to some method of spending still uses it specially when there's no internet at local markets. When time comes it's legally used for all races there will be proper development between fiat cash to be an option for physical holding and bitcoin as a digital holdings served as a storage of funds convertible to cash at all exchanges, same applied with other crypto currencies.