They are free to do that but that seems not it gives a huge negative impact on Bitcoin.
because no matter what the government and banks doing, Bitcoin still the king among cryptocurrencies. This gonna be optional but I'm expecting that people will still be choosing Bitcoin that these centralized coins. We can keep and store our Bitcoin with no commission and our fullest controlled wallet, not like how it going to happen when using banking institutions.
I never doubt that the government will definitely make their own cryptocurrency since crypto today was being trend and everybody already sees the worth and value of having crypto. Well every country only wanted to improve their economy especially the crisis that the pandemic was brought a lot of economic downfall so considering making their own crypto and implement it to their people to used it will in fact so possible. But to be honest, I do believe that this has nothing to do with bitcoin, bitcoin was already established and valuable.