in my country. Bitcoin is allowed to be traded. Bitcoin has been legalized as an investment just like gold. However bitcoin is not allowed to be used for payments. Because the only currency allowed is rupiah.
What the government is doing that only allows fiat currency for transactions is the right thing, of course it will cause a lot of problems if the function of bitcoin is equated with fiat, the presence of bitcoin is to improve the world's transaction system but will not be able to replace fiat currency.
A good alternative as a system to transact from border to border in a much quicker ways, but as a full replacement t indeed have conflicts with the current system of the government. Decentralization is not going to happened while government is still in control.
They wanted to have full access with every thing in terms of financial manner, government wants that power to make sure that they
are not being sabotage backdoor.